SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
FRANKLIN TELECOMMUNICATIONS CORP.
(Name of Issuer)
COMMON STOCK
(Title of Class of Securities)
3547271208
(Cusip Number)
MELVYN CRAW
CRESCENT INTERNATIONAL LIMITED
C/O GREENLIGHT (SWITZERLAND) SA
84, AV LOUIS-CASAI, P.O. BOX 42
1216 GENEVA, COINTRIN
SWITZERLAND
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
COPY TO:
SARA P. HANKS, ESQ.
ROGERS & WELLS
200 PARK AVENUE
NEW YORK, NY 10166
(212) 878-8000
SEPTEMBER 15, 1999
(Date of event which requires filing of this statement)
|_| Check box if the filing person has previously filed a statement on
Schedule 13G to report the acquisition which is the subject of this
Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3)
or (4).
|_| Check box if a fee is being paid with the statement.
<PAGE>
- --------------------------------- -------------------------------
CUSIP No. 3547271208 13D Page 2
---------- ---
- --------------------------------- -------------------------------
============ ===================================================================
1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON
CRESCENT INTERNATIONAL LIMITED
============ ===================================================================
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a)|_|
(b)|X|
============ ===================================================================
3. SEC USE ONLY
============ ===================================================================
4. SOURCES OF FUNDS
WC
============ ===================================================================
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) OR 2(e)
|_|
============ ===================================================================
6. CITIZENSHIP OR PLACE OF ORGANIZATION
BERMUDA
- ------------------------- ------- ==============================================
7. SOLE VOTING POWER
NUMBER OF
UNITS 1,932,368
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON WITH
------- ==============================================
8. SHARED VOTING POWER
1,932,368
------- ==============================================
9. SOLE DISPOSITIVE POWER
1,932,368
------- ==============================================
10. SHARED DISPOSITIVE POWER
1,932,368
============ ===================================================================
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,932,368
============ ===================================================================
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES
|-|
============ ===================================================================
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.17%
============ ===================================================================
14. TYPE OF REPORTING PERSON
OO
============ ===================================================================
<PAGE>
- --------------------------------- -------------------------------
CUSIP No. 3547271208 13D Page 3
---------- ---
- --------------------------------- -------------------------------
============ ===================================================================
1. NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSON
DMI TRUST
============ ===================================================================
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a)|_|
(b)|X|
============ ===================================================================
3. SEC USE ONLY
============ ===================================================================
4. SOURCES OF FUNDS
NOT APPLICABLE
============ ===================================================================
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(d) OR 2(e)
|_|
============ ===================================================================
6. CITIZENSHIP OR PLACE OF ORGANIZATION
- ------------------------- ------- ==============================================
7. SOLE VOTING POWER
NUMBER OF
UNITS None
BENEFICIALLY
OWNED BY
EACH
REPORTING
PERSON WITH
------- ==============================================
8. SHARED VOTING POWER
1,932,368
------- ==============================================
9. SOLE DISPOSITIVE POWER
None
------- ==============================================
10. SHARED DISPOSITIVE POWER
1,932,368
============ ===================================================================
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,932,368
============ ===================================================================
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES
|-|
============ ===================================================================
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.17%
============ ===================================================================
14. TYPE OF REPORTING PERSON
OO
============ ===================================================================
<PAGE>
SCHEDULE 13D
FILED PURSUANT TO RULE 13d-1
OF THE GENERAL RULES AND REGULATIONS UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
ITEM 1. SECURITY AND ISSUER.
This Statement on Schedule 13D (this "Statement") relates to shares of
the common stock, no par value per share (the "Common Stock"), of Franklin
Telecommunications Corp., a California corporation (the "Issuer"). The Issuer's
principal executive offices are located at 733 Lakefield Road, Westlake Village,
California 91361.
ITEM 2. IDENTITY AND BACKGROUND.
The names and business addresses of the persons filing this
Statement are: (i) Crescent International Limited, an entity organized and
existing under the laws of Bermuda ("Crescent"), which has offices at Clarendon
House, 2 Church Street, Hamilton H 11, Bermuda and (ii) DMI Trust, a Bahamian
Trust ("DMI") which has offices at the following address: c/o DMI SA, 84, av
Louis Casai, P.O. Box 42, 1216 Geneva, Cointrin, Switzerland.(1) (Crescent and
DMI are herein sometimes collectively referred to as the "Reporting Persons.")
The name, business address, present principal occupation or employment and
citizenship of each director and executive officer of Crescent and DMI are set
forth on Schedules I and II hereto. During the past five years no Reporting
Person nor, to the best knowledge of the Reporting Persons, any of the persons
listed on Schedules I and II has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or been a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
which resulted in him or it being subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities subject
to, federal or state securities laws or finding any violation with respect to
such laws. (1) DMI is administered by DMI SA which is 100% indirectly owned by
DMI.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The aggregate amount of funds used by Crescent to purchase the
1,932,368 shares of Common Stock was approximately $2,000,000. Crescent has used
its working capital to make such purchases.
ITEM 4. PURPOSE OF THE TRANSACTION.
Crescent acquired shares of the Common Stock of the Issuer for
investment purposes. None of the Reporting Persons has any current plans or
proposals which relate to or would result in (a) the acquisition by any person
of additional securities of the Issuer or the disposition of any such
securities, (b) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Issuer or any of its subsidiaries,
(c) a sale or transfer of a material amount of assets of the Issuer or any of
its subsidiaries, (d) any change in the present board of directors or management
of the issuer, including any plans or proposals to change the number or term of
directors or to fill any existing vacancies on the board, (e) any material
change in the present capitalization or dividend policy of the Issuer, (f) any
other material change in the Issuer's business or corporate structure, (g) any
other material change in the Issuer's charter, bylaws or instruments
corresponding thereto or other actions which may impede the acquisition of
control of the Issuer by any person, (h) a class of securities of the Issuer
being delisted from a national securities exchange or to cease to be authorized
to be quoted in an inter-dealer quotation system of a registered national
securities association, (i) a class of equity securities of the Issuer becoming
eligible for termination of registration pursuant to Section 12(g)(4) of the
Securities Exchange Act of 1934, or (j) any action similar to any of the
enumerated actions in (a) through (i) above.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a)-(b) Crescent owns 1,932,368 shares of the Common Stock of
the Issuer (the "Common Stock") representing 7.17% of the 26,959,149 shares of
Common Stock outstanding as of the date hereof.
DMI may be deemed to be a beneficial owner of the shares of
Common Stock of the Issuer beneficially owned by Crescent by reason of the
ownership by DMI of 100 percent of the capital stock of Crescent. Accordingly,
for purposes of this Statement: (i) Crescent is reporting that it shares the
power to vote or direct the vote and the power to dispose or direct the
disposition of the total of 1,932,368 shares of Common Stock beneficially owned
by it and (ii) DMI is reporting that it shares the power to vote or direct the
vote and the power to dispose or direct the disposition of the 1,932,368 shares
of Common Stock beneficially owned by Crescent representing approximately 7.17%
of the as adjusted shares of Common Stock outstanding.
(c) On August 30, 1999, Crescent, pursuant to the terms
of the Stock Purchase Agreemen (as defined in Item 6) acquired 966,184 shares
of Common Stock of the Issuer for a purchase price of approximately $1,000,000.
<PAGE>
On September 15, 1999, Crescent, pursuant to the terms of the Amendment to the
Stock Purchase Agreement (as defined in Item 6), acquired an additional 966,184
shares of Common Stock of the Issuer for a purchase price of approximately
$1,000,000.
Other than as described above, Crescent has the sole power to
vote or direct the vote and to dispose or direct the disposition of all the
shares of Common Stock stated to be beneficially owned by Crescent in Item 5(a)
hereof.
(d)-(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
SECURITIES OF THE ISSUER.
The description that follows of certain provisions of the Stock
Purchase Agreement included as Exhibit 7.1 hereto, of the Registration Rights
Agreement included as Exhibit 7.2, of the Amendment to Stock Purchase Agreement
included as Exhibit 7.3 and of the Amendment to Registration Rights Agreement
included as Exhibit 7.4 hereto is not, and does purport to be, complete, and is
qualified in its entirety by reference to such Exhibits.
Crescent and the Issuer entered into a Stock Purchase Agreement, dated
August 30, 1999 (the "Stock Purchase Agreement"), pursuant to which the Issuer
may issue and sell to Crescent, from time to time shares of Common Stock.
Crescent and the Issuer entered into a Registration Rights Agreement,
dated August 30, 1999 (the "Registration Rights Agreement"), pursuant to which
the Issuer granted Crescent certain registration rights with respect to the
shares of Common Stock to be issued pursuant to the Stock Purchase Agreement
upon exercise of the Warrant.
Crescent and the Issuer entered into an Amendment to Stock Purchase
Agreement, dated September 15, 1999, amending the Stock Purchase Agreement and
providing for the purchase and sale of additional shares of Common Stock under
the Stock Purchase Agreement.
Crescent and the Issuer entered into an Amendment to Registration
Rights Agreement, dated September 15, 1999, amending the Registration Rights
Agreement and the obligations of the Company thereunder.
Except as set forth herein or in the Exhibits filed or to be filed
herewith, no contracts, arrangements, understandings or relationships (legal or
otherwise) between the Reporting Persons and any other person exists with
respect to any securities of the Issuer, including but not limited to transfer
or voting of any such securities, finder's fees, joint ventures, loan or option
arrangements, puts or calls, guarantees of profits, division of profits or loss,
or the giving or withholding of proxies.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 7.1 Stock Purchase Agreement, by and between Franklin
Telecommunications Corporation and Crescent
International Limited, dated as of August 30, 1999.
Exhibit 7.2 Registration Rights Agreement, by and between
Franklin Telecommunications Corporation and Crescent
International Limited, dated as of August 30, 1999.
Exhibit 7.3 Amendment to Stock Purchase Agreement, by and
between Franklin Telecommunications Corporation and
Crescent International Limited, dated September 15,
1999.
Exhibit 7.4 Amendment to Registration Rights Agreement, by
and between Franklin Telecommunications Corporation
and Crescent International Limited, dated September
15, 1999.
Exhibit 7.5 Agreement pursuant to Rule 13d-1(k)(1), filed
herewith.
<PAGE>
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: September 21, 1999
CRESCENT INTERNATIONAL LIMITED
By: Greenlight (Switzerland) SA,
as Manager
By: /s/ Mel Craw
-------------------------
Name: Mel Craw
Title: Managing Director
By: /s/ Maxi Brezzi
-------------------------
Name: Maxi Brezzi
Title: Director
DMI TRUST
By: /s/ Omar Ali
--------------------------------
Name: Omar Ali
Title: Director
<PAGE>
SCHEDULE I
INFORMATION REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS OF
CRESCENT INTERNATIONAL LIMITED
Set forth in the table below is the name and the present occupation
or employment of each of the directors and executive officers of Crescent
International Limited. Except as otherwise stated, each person listed below has
a business address of Clarendon House, 2 Church Street, Hamilton HM 11.
<TABLE>
<CAPTION>
Name Present Occupation or Employment Citizenship
<S> <C> <C>
Ahmed Ozen (2) Director of Crescent International Limited Luxembourg
Donald Malcolm Director of Crescent International Limited British
David Astwood Director of Crescent International Limited British
Osama Mohamed Ali (3) Secretary of Crescent International Limited Swiss
John Thompson Assistant Secretary of Crescent International Limited British
(2) Mr. Ozen has a principal business address of 3, rue Alexandre Fleming, L 1525 Luxembourg.
(3) Mr. Ali has a principal business address of 84, v. Louis Casai, P.O. Box 42, 1216 Geneva,
Cointrin, Switzerland.
</TABLE>
<PAGE>
SCHEDULE II
INFORMATION REGARDING THE TRUST ADMINISTRATOR OF
DMI TRUST
DMI Trust has a trust administrator, DMI SA. Set forth in the table
below is the name and the present principal occupation or employment of each of
the directors of the trust administrator of DMI Trust. Each person listed below
has a principal business address at the following: c/o DMI SA, 84, av Louis
Casai, P.O. Box 42, 1216 Geneva, Cointrin, Switzerland.
<TABLE>
<CAPTION>
Name Present Principal Occupation or Employment Citizenship
<S> <C> <C>
Mohamed Al-Faisal Director of Dar Al Maal Al-Islami (DMI) SA Saudi Arabian
Omar Ali Director of Dar Al Maal Al-Islami (DMI) SA Somalian
Pierre Besuchet Director of Dar Al Maal Al-Islami (DMI) SA Swiss
Lucien Rouillier Director of Dar Al Maal Al-Islami (DMI) SA Swiss
Moustapha Hosny Director of Dar Al Maal Al-Islami (DMI) SA Swiss
Khalid Abdulla-Janahi Director of Dar Al Maal Al-Islami (DMI) SA Bahrain
Osama Mohamed Ali Director of Dar Al Maal Al-Islami (DMI) SA Swiss
</TABLE>
<PAGE>
EXHIBIT 7.1
STOCK PURCHASE AGREEMENT
by and between
Crescent International Ltd.
and
Franklin Telecommunications Corp.
dated as of August 30, 1999
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I CERTAIN DEFINITIONS..................................................1
Section 1.1. "Bid Price"..............................................1
Section 1.2. "Capital Shares".........................................1
Section 1.3. "Closing"................................................1
Section 1.4. "Closing Date"...........................................2
Section 1.5. "Commitment Period"......................................2
Section 1.6. "Common Stock"...........................................2
Section 1.7. "Condition Satisfaction Date"............................2
Section 1.8. "Daily Trading Value"....................................2
Section 1.9. "Damages"................................................2
Section 1.10. "Early Put Shares".......................................2
Section 1.11. "Early Put Warrant"......................................2
Section 1.12. "Early Put Warrant Shares"...............................2
Section 1.13. "Effective Date".........................................2
Section 1.14. "Exchange Act"...........................................2
Section 1.15. "Incentive Warrant Shares"...............................2
Section 1.16. "Incentive Warrant"......................................2
Section 1.17. "Investment Amount"......................................3
Section 1.18. "Legend".................................................3
Section 1.19. "Lowest Average Price"...................................3
Section 1.20. "Material Adverse Effect"................................3
Section 1.21. "Maximum Commitment Amount"..............................3
Section 1.22. "Maximum Put Amount".....................................3
Section 1.23. "Minimum Bid Price"......................................3
Section 1.24. "Minimum Put Amount".....................................3
Section 1.25. "Minimum Time Interval"..................................3
Section 1.26. "NASD"...................................................3
Section 1.27. "Outstanding"............................................3
Section 1.28. "Person".................................................3
Section 1.29. "Principal Market".......................................3
Section 1.30. "Purchase Price".........................................3
Section 1.31. "Put"....................................................4
1
<PAGE>
Section 1.32. "Put Date"...............................................4
Section 1.33. "Put Fees"...............................................4
Section 1.34. "Put Notice".............................................4
Section 1.35. "Put Notice Period"......................................4
Section 1.36. "Put Shares".............................................4
Section 1.37. "Registrable Securities".................................4
Section 1.38. "Registration Rights Agreement"..........................4
Section 1.39. "Registration Statement".................................4
Section 1.40. "Regulation D"...........................................5
Section 1.41. "SEC"....................................................5
Section 1.42. "SEC Documents"..........................................5
Section 1.43. "Section 4(2)"...........................................5
Section 1.44. "Securities Act".........................................5
Section 1.45. "Subscription Date"......................................5
Section 1.46. "Subsidiary".............................................5
Section 1.47. "Trading Day"............................................5
Section 1.48. "Underwriter"............................................5
Section 1.49. "Valuation Period".......................................5
Section 1.50. "Warrants"...............................................5
Section 1.51. "Warrant Shares".........................................5
ARTICLE II PURCHASE AND SALE OF COMMON STOCK; TERMINATION OF OBLIGATIONS;
INCENTIVE WARRANT ..................................................5
Section 2.1. Investments..............................................6
Section 2.2. Mechanics................................................6
Section 2.3. Closings.................................................6
Section 2.4. Termination of Agreement and Investment Obligation.......7
Section 2.5. The Incentive Warrant....................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF INVESTOR.........................7
Section 3.1. Intent...................................................7
Section 3.2. Sophisticated Investor...................................7
Section 3.3. Authority................................................7
Section 3.4. Not an Affiliate.........................................8
Section 3.5. Organization and Standing................................8
Section 3.6. Absence of Conflicts.....................................8
Section 3.7. Disclosure; Access to Information........................8
2
<PAGE>
Section 3.8. Manner of Sale...........................................8
Section 3.9. Resale Restrictions......................................8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................9
Section 4.1. Organization of the Company..............................9
Section 4.2. Authority................................................9
Section 4.3. Corporate Documents......................................9
Section 4.4. Books and Records........................................9
Section 4.5. Capitalization..........................................10
Section 4.6. Registration and Listing of Common Stock................10
Section 4.7. Financial Statements....................................10
Section 4.8. SEC Documents...........................................10
Section 4.9. Exemption from Registration; Valid Issuances;
New Issuances...........................................11
Section 4.10. No General Solicitation or Advertising in
Regard to this Transaction..............................11
Section 4.11. No Conflicts............................................11
Section 4.12. No Material Adverse Change..............................12
Section 4.13. No Undisclosed Liabilities..............................12
Section 4.14. No Undisclosed Events or Circumstances..................12
Section 4.15. No Integrated Offering..................................12
Section 4.16. Litigation and Other Proceedings........................13
Section 4.17. No Misleading or Untrue Communication...................13
Section 4.18. Material Non-Public Information.........................13
ARTICLE V COVENANTS OF THE INVESTOR...........................................13
Section 5.1. Compliance..............................................13
Section 5.2. No Short Sales..........................................13
ARTICLE VI COVENANTS OF THE COMPANY...........................................13
Section 6.1. Registration Rights.....................................14
Section 6.2. Reservation of Common Stock.............................14
Section 6.3. Listing of Common Stock.................................14
Section 6.4. Exchange Act Registration...............................14
Section 6.5. Legends.................................................14
Section 6.6. Corporate Existence.....................................14
Section 6.7. Additional SEC Documents................................14
Section 6.8. Notice of Certain Events Affecting Registration;
Suspension of Right to Make a Put.......................14
Section 6.9. Consolidation; Merger...................................15
3
<PAGE>
Section 6.10. Issuance of Put Shares, Warrant Shares and
Additional Shares.......................................15
Section 6.11. Legal Opinion on Subscription Date......................15
Section 6.12. No Similar Arrangement; Right of First Refusal..........16
ARTICLE VII CONDITIONS TO DELIVERY OF PUT NOTICES AND CONDITIONS
TO CLOSING........................................................16
Section 7.1. Conditions Precedent to the Obligation of the
Company to Issue and Sell Common Stock..................16
Section 7.2. Conditions Precedent to the Right of the Company
to Deliver a Put Notice and the Obligation of the
Investor to Purchase Put Shares.........................17
Section 7.3. Due Diligence Review; Non-Disclosure of
Non-Public Information..................................19
ARTICLE VIII LEGENDS..........................................................20
Section 8.1. Legends.................................................20
Section 8.2. No Other Legend or Stock Transfer Restrictions..........22
Section 8.3. Investor's Compliance...................................22
ARTICLE IX INDEMNIFICATION; ARBITRATION.......................................22
Section 9.1. Indemnification.........................................22
Section 9.2. Method of Asserting Indemnification Claims..............23
Section 9.3. Arbitration.............................................26
ARTICLE X MISCELLANEOUS.......................................................26
Section 10.1. Put Fees and Transaction Costs..........................26
Section 10.2. Reporting Entity for the Common Stock...................27
Section 10.3. Brokerage...............................................27
Section 10.4. Notices.................................................27
Section 10.5. Assignment..............................................28
Section 10.6. Amendment; No Waiver....................................28
Section 10.7. Annexes and Exhibits; Entire Agreement..................29
Section 10.8. Survival................................................29
Section 10.9. Severability............................................29
Section 10.10.Title and Subtitles.....................................29
Section 10.11.Counterparts............................................29
Section 10.12.Choice of Law...........................................29
Section 10.13.Other Expenses..........................................29
4
<PAGE>
STOCK PURCHASE AGREEMENT
by and between
Crescent International Ltd.
and
Franklin Telecommunications Corp.
dated as of August 30, 1999
This STOCK PURCHASE AGREEMENT is entered into as of the 30th day of
August, 1999 (this "Agreement"), by and between Crescent International Ltd. (the
"Investor"), an entity organized and existing under the laws of Bermuda, and
Franklin Telecommunications Corp., a corporation organized and existing under
the laws of the State of California (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase, up to
$6,500,000 of the Common Stock (as defined below); and
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933, as amended and the rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments in Common Stock to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. "Bid Price" shall mean the closing bid price as reported
under Section 10.2 of this Agreement.
Section 1.2. "Capital Shares" shall mean the Common Stock and any shares
of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of dividends (as and when declared)
and assets (upon liquidation of the Company).
Section 1.3. "Closing" shall mean one of the closings of a purchase and
sale of the Common Stock pursuant to Section 2.1.
<PAGE>
Section 1.4. "Closing Date" shall mean, with respect to a Closing, the
first Trading Day following the Put Notice Period related to such Closing,
provided all conditions to such Closing have been satisfied on or before such
Trading Day.
Section 1.5. "Commitment Period" shall mean the period commencing on the
Subscription Date and expiring on the earlier to occur of (i) the date on which
the Investor shall have purchased Put Shares pursuant to this Agreement for an
aggregate Purchase Price of the Maximum Commitment Amount, (ii) the date this
Agreement is terminated pursuant to Section 2.4, or (iii) the date occurring two
years from the Subscription Date.
Section 1.6. "Common Stock" shall mean the Company's common stock, no par
value per share.
Section 1.7. "Condition Satisfaction Date" shall have the meaning set
forth in Section 7.2 of this Agreement.
Section 1.8. "Daily Trading Value" shall mean, on any Trading Day, the Bid
Price multiplied by the trading volume of the Common Stock.
Section 1.9. "Damages" shall mean any and all losses, claims, damages,
liabilities, costs and expenses (including, without limitation, any and all
investigative, legal and other expenses reasonably incurred in connection with,
and any and all amounts paid in defense or settlement of, any action, suit or
proceeding between any indemnified party and any indemnifying party or between
any indemnified party and any third party, or otherwise, or any claim asserted).
Section 1.10. "Early Put Shares" shall mean the shares of Common Stock
purchased by the Investor from the Company on the Subscription Date pursuant to
Section 2.1(c).
Section 1.11. "Early Put Warrant" shall mean the Early Put Warrant in the
form of Exhibit C hereto issued pursuant to Section 2.1(d) of this Agreement.
Section 1.12. "Early Put Warrant Shares" shall mean all shares of Common
Stock issued or issuable pursuant to exercise of the Early Put Warrants.
Section 1.13. "Effective Date" shall mean the earlier to occur of: (i) the
date on which the SEC has declared effective a Registration Statement
registering resale of Registrable Securities as set forth in Section 7.2(a) and
(ii) the date on which such Registrable Securities first become eligible for
resale pursuant to Rule 144 of the Securities Act.
Section 1.14. "Exchange Act" shall mean the United States Securities
Exchange Act of 1934, as amended and the rules and regulations promulgated
thereunder.
Section 1.15. "Incentive Warrant Shares" shall mean all shares of Common
Stock issued or issuable pursuant to exercise of the Incentive Warrant.
Section 1.16. "Incentive Warrant" shall mean the Incentive Warrant in the
form of Exhibit B hereto issued pursuant to Section 2.5 of this Agreement.
2
<PAGE>
Section 1.17. "Investment Amount" shall mean the dollar amount to be
invested by the Investor to purchase Put Shares with respect to any Put Date as
notified by the Company to the Investor in accordance with Section 2.2 hereof.
Section 1.18. "Legend" shall have the meaning specified in Section 8.1.
Section 1.19. "Lowest Average Price" shall mean the average of the lowest
three consecutive Bid Prices during the applicable Valuation Period.
Section 1.20. "Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects, or financial condition of the
Company that is material and adverse to the Company or to the Company and such
other entities controlling or controlled by the Company, taken as a whole,
and/or any condition, circumstance, or situation that would prohibit or
otherwise interfere with the ability of the Company to enter into and perform
its obligations under any of (i) this Agreement, (ii) the Registration Rights
Agreement and (iii) the Warrants.
Section 1.21. "Maximum Commitment Amount" shall mean $6,500,000.
Section 1.22. "Maximum Put Amount" shall mean $300,000.
Section 1.23. "Minimum Bid Price" shall have the meaning set forth in
Section 7.2(j) of this Agreement.
Section 1.24. "Minimum Put Amount" shall mean $200,000.
Section 1.25. "Minimum Time Interval" shall mean the mandatory twenty-two
(22) Trading Days between any two Put Dates.
Section 1.26. "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.27. "Outstanding" when used with reference to Common Shares or
Capital Shares (collectively the "Shares"), shall mean, at any date as of which
the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not refer to any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 1.28. "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.29. "Principal Market" shall mean the Nasdaq National Market,
the Nasdaq SmallCap Market, the American Stock Exchange, the Bulletin Board or
the New York Stock Exchange, whichever is at the time the principal trading
exchange or market for the Common Stock.
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Section 1.30. "Purchase Price" shall mean, with respect to a Put,
ninety-two percent (92%) of the Lowest Average Price.
Section 1.31. "Put" shall mean each occasion the Company elects to
exercise its right to tender a Put Notice requiring the Investor to purchase a
discretionary amount of the Company's Common Stock, subject to the terms and
conditions of this Agreement.
Section 1.32. "Put Date" shall mean the Trading Day during the Commitment
Period that a Put Notice to sell Common Stock to the Investor is deemed
delivered pursuant to Section 2.2(b) hereof.
Section 1.33. "Put Fees" shall have the meaning specified in Section 10.1
hereof.
Section 1.34. "Put Notice" shall mean a written notice to the Investor
setting forth the intended Closing Date and the Investment Amount that the
Company intends to require the Investor to purchase pursuant to the terms of
this Agreement.
Section 1.35. "Put Notice Period" shall mean a period beginning on a Put
Date and ending on a Closing Date; provided that in no event shall a Put Notice
Period be less than seven (7) Trading Days.
Section 1.36. "Put Shares" shall mean all shares of Common Stock issued or
issuable pursuant to a Put that has been exercised or may be exercised in
accordance with the terms and conditions of this Agreement.
Section 1.37. "Registrable Securities" shall mean (i) the Put Shares, (ii)
the Warrant Shares and (iii) any securities issued or issuable with respect to
any of the foregoing by way of exchange, stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise. As to any particular Registrable
Securities, once issued such securities shall cease to be Registrable Securities
when (w) the applicable Registration Statement has been declared effective by
the SEC and all such Registrable Securities have been disposed of pursuant to
the applicable Registration Statement, (x) all such Registrable Securities have
been sold under circumstances under which all of the applicable conditions of
Rule 144 (or any similar provision then in force) under the Securities Act
("Rule 144") are met, (y) such time as all such Registrable Securities have been
otherwise transferred to holders who may trade such shares without restriction
under the Securities Act, and the Company has delivered a new certificate or
other evidence of ownership for such securities not bearing a restrictive legend
or (z) in the opinion of counsel to the Company, which counsel shall be
reasonably acceptable to the Investor, all such Registrable Securities may be
sold without registration or the need for an exemption from any registration
requirements and without any time, volume or manner limitations pursuant to Rule
144(k) (or any similar provision then in effect) under the Securities Act.
Section 1.38. "Registration Rights Agreement" shall mean the registration
rights agreement in the form of Exhibit A hereto.
Section 1.39. "Registration Statement" shall mean a registration statement
on Form S-3 (if use of such form is then available to the Company pursuant to
the rules of the SEC and, if not,
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on such other form promulgated by the SEC for which the Company then qualifies
and which counsel for the Company shall deem appropriate and which form shall be
available for the resale of the Registrable Securities to be registered
thereunder in accordance with the provisions of this Agreement, the Registration
Rights Agreement and the Warrants and in accordance with the intended method of
distribution of such securities), for the registration of the resale by the
Investor of the Registrable Securities under the Securities Act.
Section 1.40. "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.41. "SEC" shall mean the Securities and Exchange Commission.
Section 1.42. "SEC Documents" shall mean the Company's latest Form 10-K as
of the time in question, all Forms 10-Q and 8-K filed thereafter, and the Proxy
Statement for its latest fiscal year as of the time in question until such time
the Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth in the Registration Rights Agreement.
Section 1.43. " Section 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.44. "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.45. "Subscription Date" shall mean the date on which this
Agreement is executed and delivered by the parties hereto.
Section 1.46. "Subsidiary" shall mean any Person in which the Company,
directly or indirectly through Subsidiaries or otherwise, beneficially owns more
than fifty percent (50%) of either the equity interests in, or the voting
control of, such Person.
Section 1.47. "Trading Day" shall mean any day during which the Principal
Market shall be open for business.
Section 1.48. "Underwriter" shall mean any underwriter participating in
any disposition of the Registrable Securities on behalf of the Investor pursuant
to a Registration Statement.
Section 1.49. "Valuation Period" shall mean (i) with respect to the
Subscription Date, the twenty-two (22) Trading Day period immediately preceding
the Subscription Date, (ii) with respect to an Effective Date, the twenty-two
(22) Trading Day period immediately preceding such Effective Date and (iii) with
respect to a Closing Date, the twenty-two (22) Trading Day period immediately
preceding the applicable Put Date, during which the Purchase Price of the Common
Stock is determined.
Section 1.50. "Warrants" shall mean the Early Put Warrants and Incentive
Warrant.
Section 1.51. "Warrant Shares" shall mean the Early Put Warrant Shares and
the Incentive Warrant Shares.
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ARTICLE II
PURCHASE AND SALE OF COMMON STOCK;
TERMINATION OF OBLIGATIONS; INCENTIVE WARRANT
Section 2.1. Investments.
(a) Puts. Upon the terms and conditions set forth herein (including,
without limitation, the provisions of Article VII hereof), on any Put Date
the Company may exercise a Put by the delivery of a Put Notice. The number
of Put Shares that the Investor shall receive pursuant to such Put shall
be determined by dividing the Investment Amount specified in the Put
Notice by the Purchase Price with respect to such Put Date.
(b) Maximum Amount of Puts. Unless the Company obtains the requisite
approval of its shareholders in accordance with the corporate laws of
California and the applicable rules of the Principal Market, no more than
19.9% of the Outstanding shares of Common Stock may be issued and sold
pursuant to Puts and Warrants.
(c) Early Put. The Company shall issue and sell and the Investor shall
purchase, on the Subscription Date, shares of the Common Stock for an
Investment Amount of $1,000,000 at the Purchase Price on the Subscription
Date (the "Early Put Shares"). For the purpose only of such Early Put, the
Investor waives the requirements of Section 2.2, and the conditions set
forth in paragraphs (a) and (b) of Section 7.2 hereof.
(d) Early Put Warrants. In addition to the Incentive Warrant (as defined
hereinafter), on the Subscription Date, the Company shall issue to the
Investor an Early Put Warrant with an exercise price of $0.01 for each
share of Common Stock.
Section 2.2. Mechanics.
(a) Put Notice. At any time during the Commitment Period, the Company may
deliver a Put Notice to the Investor, subject to the conditions set forth
in Section 7.2; provided, however, the Investment Amount for each Put as
designated by the Company in the applicable Put Notice shall be neither
less than the Minimum Put Amount nor more than the Maximum Put Amount.
(b) Date of Delivery of Put Notice. A Put Notice shall be deemed delivered
on (i) the Trading Day it is received by facsimile or otherwise by the
Investor if such notice is received prior to 12:00 noon New York time, or
(ii) the immediately succeeding Trading Day if it is received by facsimile
or otherwise after 12:00 noon New York time on a Trading Day or at any
time on a day which is not a Trading Day. No Put Notice may be deemed
delivered, on a day that is not a Trading Day.
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Section 2.3. Closings. On each Closing Date for a Put, (i) the Company
shall deliver irrevocable instructions to the transfer agent to prepare and
deliver to the Investor a share certificate in the name of the Investor and in
the amount of the applicable Put Shares and (ii) the Investor shall deliver to
the Company the Investment Amount specified in the Put Notice by wire transfer
of immediately available funds to the account designated in the Put Notice. In
addition, on or prior to such Closing Date, each of the Company and the Investor
shall deliver to the other all documents, instruments and writings required to
be delivered or reasonably requested by either of them pursuant to this
Agreement in order to implement and effect the transactions contemplated herein.
Section 2.4. Termination of Agreement and Investment Obligation. The
Company shall have the right to terminate this Agreement at any time upon thirty
(30) days' written notice to the Investor. The Investor shall have the right to
immediately terminate this Agreement (including with respect to any Put, notice
of which has been given but the applicable Closing Date has not yet occurred) in
accordance with Section 6.12 or in the event that: (i) the Registration
Statement with respect to shares of Common Stock purchased through the Early Put
is not effective within ninety (90) days following the Subscription Date, (ii) a
Registration Statement with respect to shares of Common Stock purchased through
any subsequent Put is not effective within ninety (90) days following the
applicable Closing Date, (iii) there shall occur any stop order or suspension of
the effectiveness of the Registration Statement for an aggregate of thirty (30)
Trading Days during the Commitment Period, (iv) the Company shall at any time
fail to comply with the requirements of Section 6.2, 6.3, 6.4, 6.5, 6.6, 6.8 or
6.9.
Section 2.5. The Incentive Warrant. On the Subscription Date, the Company
shall issue the Incentive Warrant to the Investor. The Incentive Warrant shall
be delivered by the Company to the Investor upon execution of this Agreement by
the parties hereto. The Incentive Warrant Shares shall be registered for resale
pursuant to the Registration Rights Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company that:
Section 3.1. Intent. The Investor is entering into this Agreement for its
own account and the Investor has no view to the distribution of the Registrable
Securities or Warrants and has no present arrangement (whether or not legally
binding) at any time to sell the Registrable Securities or Warrants to or
through any person or entity; provided, however, that by making the
representations herein, the Investor does not agree to hold the Registrable
Securities or Warrants for any minimum or other specific term and reserves the
right to dispose of the Registrable Securities or Warrants at any time pursuant
to the Registration Statement and in accordance with federal and state
securities laws applicable to such disposition.
Section 3.2. Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it is capable of evaluating
the merits and risks of an investment in the Common Stock. The
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Investor acknowledges that an investment in the Common Stock is speculative and
involves a high degree of risk.
Section 3.3. Authority. Each of this Agreement and the Registration Rights
Agreement has been duly authorized by all necessary corporate action and no
further consent or authorization of the Investor, or its Board of Directors or
stockholders is required. Each of this Agreement and the Registration Rights
Agreement was validly executed and delivered by the Investor and each is a valid
and binding agreement of the Investor enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency, or similar laws
relating to, or affecting generally the enforcement of, creditors' rights and
remedies or by other equitable principles of general application.
Section 3.4. Not an Affiliate. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5. Organization and Standing. Investor is duly organized,
validly existing, and in good standing under the laws of Bermuda.
Section 3.6. Absence of Conflicts. The execution and delivery of this
Agreement and any other document or instrument contemplated hereby, and the
consummation of the transactions contemplated thereby, and compliance with the
requirements thereof, will not (a) violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on Investor, or, to the
Investor's knowledge, (b) violate any provision of any indenture, instrument or
agreement to which Investor is a party or is subject, or by which Investor or
any of its assets is bound, (c) conflict with or constitute a material default
thereunder, (d) result in the creation or imposition of any lien pursuant to the
terms of any such indenture, instrument or agreement, or constitute a breach of
any fiduciary duty owed by Investor to any third party, or (e) require the
approval of any third-party (that has not been obtained) pursuant to any
material contract to which Investor is subject or to which any of its assets,
operations or management may be subject.
Section 3.7. Disclosure; Access to Information. Investor has received all
documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested by Investor. The Investor has
received and reviewed copies of the SEC Documents.
Section 3.8. Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
Section 3.9. Resale Restrictions. It is acknowledged by Investor that any
Registrable Securities and Warrants to be acquired by Investor have not been
registered under the federal securities laws or any applicable state securities
laws in reliance upon exemptions available for non-public or limited offerings.
Investor understands that Investor must bear the economic risk of the investment
in the Registrable Securities and Warrants because the Registrable Securities
and Warrants have not been so registered and therefore are subject to
restrictions upon transfer such that they may not be sold or otherwise
transferred unless registered under the applicable securities laws or an
exemption from such registration is available. Investor will not reoffer, sell,
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assign, transfer, pledge, encumber, hypothecate or otherwise dispose of any
Registrable Securities or the Warrants in the absence of an effective
registration statement, qualification or authorization relating thereto under
federal and applicable state securities laws or an opinion of qualified counsel
satisfactory to the Company to the effect that the proposed transaction in the
Registrable Securities or the Warrants will neither constitute or result in any
violation of the federal or state securities laws. Subject to Section 8.1 of
this Agreement, any certificate or other document that may be issued
representing any shares of Registrable Securities or the Warrants may be
endorsed with a legend to this effect.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that:
Section 4.1. Organization of the Company. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California and has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Except as set forth in the SEC Documents, the Company does not own more than
fifty percent (50%) of the outstanding capital stock of or control any other
business entity. The Company is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, other than those in which the failure so to qualify would not have a
Material Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate power
and authority to enter into and perform its obligations under this Agreement,
the Registration Rights Agreement and the Warrants and to issue the Put Shares,
the Warrants and the Warrant Shares; (ii) the execution and delivery of this
Agreement and the Registration Rights Agreement, and the execution, issuance and
delivery of the Warrants, by the Company and the consummation by it of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action and no further consent or authorization of the
Company or its Board of Directors or stockholders is required; and (iii) each of
this Agreement and the Registration Rights Agreement has been duly executed and
delivered, and the Warrants have been duly executed, issued and delivered, by
the Company and constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
Section 4.3. Corporate Documents. The Company has furnished or made
available to the Investor true and correct copies of the Company's Articles of
Incorporation, as amended and in effect on the date hereof (the "Certificate"),
and the Company's By-Laws, as amended and in effect on the date hereof (the
"By-Laws").
Section 4.4. Books and Records. The minute books and other similar records
of the Company and its subsidiaries as made available to Investor prior to the
execution of this
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Agreement contain a true and complete record, in all material respects, of all
action taken at all meetings and by all written consents in lieu of meetings of
the stockholders, the boards of directors and committees of the boards of
directors of the Company and the subsidiaries. The stock transfer ledgers and
other similar records of the Company and the subsidiaries as made available to
Investor prior to the execution of this Agreement accurately reflect all record
transfers prior to the execution of this Agreement in the capital stock of the
Company and the subsidiaries. Neither the Company nor any subsidiary has any of
its Books and Records recorded, stored, maintained, operated or otherwise wholly
or partly dependent upon or held by any means (including any electronic,
mechanical or photographic process, whether computerized or not) which
(including all means of access thereto and therefrom) are not under the
exclusive ownership and direct control of the Company or a subsidiary.
Section 4.5. Capitalization. The authorized capital stock of the Company
consists of 90,000,000 shares of Common Stock, of which 25,806,726 shares are
issued and outstanding, and 10,000,000 shares of preferred stock, none of which
are issued and outstanding. Except for (i) options to purchase not more than
11,422,000 shares of Common Stock with purchase prices between $0.10 and $2.78
per share; and (ii) warrants to purchase not more than 1,047,510 shares of
Common Stock with purchase prices between $0.78 and $5.00 per share, there are
no options, warrants, or rights to subscribe to, securities, rights or
obligations convertible into or exchangeable for or giving any right to
subscribe for any shares of capital stock of the Company. All of the outstanding
shares of Common Stock of the Company have been duly and validly authorized and
issued and are fully paid and nonassessable.
Section 4.6. Registration and Listing of Common Stock. The Company has
registered its Common Stock pursuant to Section 12(b) or 12(g) of the Exchange
Act and is in full compliance with all reporting requirements of the Exchange
Act, and the Company has maintained all requirements for the continued listing
or quotation of its Common Stock, and such Common Stock is currently listed or
quoted on the Principal Market. As of the date hereof, the Principal Market is
the American Stock Exchange.
Section 4.7. Financial Statements. Prior to the execution of this
Agreement, the Company has delivered to the Investor true and complete copies of
the following financial statements:
(a) the audited balance sheets of the Company and its consolidated
subsidiaries as of June 30, 1997, and June 30, 1998, and the related audited
consolidated statements of operations, stockholders' equity and cash flows for
each of the fiscal years then ended, together with a true and correct copy of
the report of such audited information by Singer Lewak Greenbaum & Goldstein
LLP, and all letters from such accountants with respect to the results of such
audits; and
(b) the unaudited balance sheets of the Company and its consolidated
subsidiaries as of March 31, 1999, found in the Company's 10-Q filed on April
29, 1999, for the quarterly period ended March 31, 1999 and the related
unaudited consolidated statements of operations and stockholders' equity for the
portion of the fiscal year then ended.
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The financial statements of the Company delivered to the Investor have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto or (ii) in
the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
Section 4.8. SEC Documents. The Company has delivered or made available to
the Investor true and complete copies of the SEC Documents (including, without
limitation, proxy information and solicitation materials). The Company has not
provided to the Investor any information that, according to applicable law, rule
or regulation, should have been disclosed publicly prior to the date hereof by
the Company, but which has not been so disclosed. As of their respective dates,
the SEC Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and other federal, state
and local laws, rules and regulations applicable to such SEC Documents, and none
of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the SEC Documents comply as to form and substance in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or the
notes thereto or (ii) in the case of unaudited interim statements, to the extent
they may include summary notes and may be condensed or summary statements) and
fairly present in all material respects the financial position of the Company as
of the dates thereof and the results of operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments).
Section 4.9. Exemption from Registration; Valid Issuances; New Issuances.
The sale and issuance of the Warrants, the Warrant Shares, and the Put Shares in
accordance with the terms and on the bases of the representations and warranties
set forth in this Agreement, may and shall be properly issued pursuant to Rule
4(2), Regulation D and/or any applicable state law. When issued and paid for as
herein provided, the Put Shares and the Warrant Shares shall be duly and validly
issued, fully paid, and nonassessable. Neither the sales of the Put Shares, the
Warrants, or the Warrant Shares pursuant to, nor the Company's performance of
its obligations under, this Agreement, the Registration Rights Agreement or the
Warrants shall (i) result in the creation or imposition of any liens, charges,
claims or other encumbrances upon the Put Shares, the Warrant Shares, or any of
the assets of the Company, or (ii) entitle the holders of Outstanding Capital
Shares to preemptive or other rights to subscribe to or acquire the Capital
Shares or other securities of the Company. The Put Shares and the Warrant Shares
shall not subject the Investor to personal liability by reason of the ownership
thereof. The Put Shares and Warrant Shares have been duly authorized by the
Company, but have not been issued (whether or not subsequently repurchased by
the Company) to any Person, and when issued to the Investor in
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accordance with this Agreement and the Warrants will not have been issued
(whether or not subsequently repurchased by the Company) to any Person other
than the Investor.
Section 4.10. No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising with respect to any of the Put Shares, the Warrants, or
the Warrant Shares, or (ii) made any offers or sales of any security or
solicited any offers to buy any security under any circumstances that would
require registration of the Common Stock under the Securities Act.
Section 4.11. No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
the Put Shares, the Warrants and the Warrant Shares do not and will not (i)
result in a violation of the Certificate or By-Laws or (ii) conflict with, or
constitute a material default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture,
instrument or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (iii) result in a violation of any
federal, state, local or foreign law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations) applicable
to the Company or by which any property or asset of the Company is bound or
affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect) nor is the Company otherwise in
violation of, conflict with or in default under any of the foregoing; provided,
however, that for purposes of the Company's representations and warranties as to
violations of foreign law, rule or regulation referenced in clause (iii), such
representations and warranties are made only to the best of the Company's
knowledge insofar as the execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby are or may be affected by the status of the Investor under
or pursuant to any such foreign law, rule or regulation. The business of the
Company is not being conducted in violation of any law, ordinance or regulation
of any governmental entity, except for possible violations that either singly or
in the aggregate do not and will not have a Material Adverse Effect. The Company
is not required under federal, state or local law, rule or regulation to obtain
any consent, authorization or order of, or make any filing or registration with,
any court or governmental agency in order for it to execute, deliver or perform
any of its obligations under this Agreement or issue and sell the Common Stock
or the Warrants in accordance with the terms hereof (other than any SEC, NASD or
state securities filings that may be required to be made by the Company
subsequent to any Closing, any registration statement that may be filed pursuant
hereto, and any shareholder approval required by the rules applicable to
companies whose common stock trades on the American Stock Exchange); provided
that, for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Investor herein.
Section 4.12. No Material Adverse Change. Since June 30, 1998, no event
has occurred that would have a Material Adverse Effect on the Company.
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Section 4.13. No Undisclosed Liabilities. The Company has no liabilities
or obligations that are material, individually or in the aggregate, other than
those incurred in the ordinary course of the Company's businesses since June 30,
1998, and which, individually or in the aggregate, do not or would not have a
Material Adverse Effect on the Company.
Section 4.14. No Undisclosed Events or Circumstances. Since June 30, 1998,
no event or circumstance has occurred or exists with respect to the Company or
its businesses, properties, prospects, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced.
Section 4.15. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, other than pursuant to this Agreement, under circumstances
that would require registration of the Common Stock under the Securities Act.
Section 4.16. Litigation and Other Proceedings. Except as may be set forth
in the SEC Documents, there are no lawsuits or proceedings pending or to the
best knowledge of the Company threatened, against the Company, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which might have a Material Adverse Effect. Except as set
forth in the SEC Documents, no judgment, order, writ, injunction or decree or
award has been issued by or, so far as is known by the Company, requested of any
court, arbitrator or governmental agency which might result in a Material
Adverse Effect.
Section 4.17. No Misleading or Untrue Communication. The Company, any
Person representing the Company, and, to the knowledge of the Company, any other
Person selling or offering to sell the Put Shares, the Warrants or the Warrant
Shares in connection with the transactions contemplated by this Agreement, have
not made, at any time, any oral communication in connection with the offer or
sale of the same which contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements, in
the light of the circumstances under which they were made, not misleading.
Section 4.18. Material Non-Public Information. The Company is not in
possession of, nor has the Company or its agents disclosed to the Investor, any
material non-public information that (i) if disclosed, would, or could
reasonably be expected to have, an effect on the price of the Common Stock or
(ii) according to applicable law, rule or regulation, should have been disclosed
publicly by the Company prior to the date hereof but which has not been so
disclosed.
ARTICLE V
COVENANTS OF THE INVESTOR
Section 5.1. Compliance. The Investor's trading activities with respect to
shares of the Company's Common Stock will be in compliance with all applicable
state and federal securities laws, rules and regulations and the rules and
regulations of the Principal Market on which the Company's Common Stock is
listed.
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Section 5.2. No Short Sales. During the thirty (30) days prior to the
Subscription Date, neither the Investor nor any affiliate of the Investor has,
and during the Commitment Period neither the Investor nor any affiliate of the
Investor will (i) engage in any short sale of the Common Stock of the Company,
or (ii) take any action or engage in any transaction for the purpose of
affecting the market price of the Company's Common Stock. Nothing in this
Section 5.2 shall prohibit the Investor or any affiliate from making regular
sales of the Common Stock acquired pursuant to this Agreement.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all respects with the terms thereof.
Section 6.2. Reservation of Common Stock. As of the date hereof, the
Company has available and the Company shall reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue the Put Shares and the
Warrant Shares; such amount of shares of Common Stock to be reserved shall be
calculated based upon the minimum Purchase Price for the Put Shares under the
terms and conditions of this Agreement and the Exercise Price of the Incentive
Warrant and the maximum number of Early Put Warrant Shares issuable pursuant to
the Early Put Warrant. The number of shares so reserved from time to time, as
theretofore increased or reduced as hereinafter provided, may be reduced by the
number of shares actually delivered.
Section 6.3. Listing of Common Stock. The Company shall exercise best
efforts to maintain the listing of the Common Stock on a Principal Market, and
as soon as practicable (but in any event prior to the Closing Date for any Put)
will cause the Put Shares and the Warrant Shares with respect to such Put to be
listed on the Principal Market. The Company further shall, if the Company
applies to have the Common Stock traded on any other Principal Market, include
in such application the Put Shares and the Warrant Shares, and shall take such
other action as is necessary or desirable in the opinion of the Investor to
cause the Common Stock to be listed on such other Principal Market as promptly
as possible. The Company shall use commercially reasonable efforts to continue
the listing and trading of its Common Stock on the Principal Market (including,
without limitation, maintaining sufficient net tangible assets) and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and the Principal Market.
Section 6.4. Exchange Act Registration. After each Registration Statement
becomes effective, the Company shall cause the Common Stock covered by such
Registration Statement to continue to be registered under Section 12(g) or 12(b)
of the Exchange Act, will comply in all respects with its reporting and filing
obligations under the Exchange Act, and will not take any action or file any
document (whether or not permitted by the Exchange Act or the rules
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thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under the Exchange Act.
Section 6.5. Legends. The certificates evidencing the Put Shares and the
Warrant Shares shall be free of legends, except as provided for in Article VIII.
Section 6.6. Corporate Existence. The Company shall take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7. Additional SEC Documents. During the Commitment Period, the
Company shall deliver to the Investor, as and when the originals thereof are
submitted to the SEC for filing, copies of all SEC Documents so furnished or
submitted to the SEC.
Section 6.8. Notice of Certain Events Affecting Registration; Suspension
of Right to Make a Put. The Company shall immediately notify the Investor, but
in no event later than two (2) business days by facsimile and by overnight
courier, upon the occurrence of any of the following events in respect of a
Registration Statement or related prospectus in respect of an offering of
Registrable Securities: (i) receipt of any request for additional information by
the SEC or any other federal or state governmental authority during the period
of effectiveness of the Registration Statement for amendments or supplements to
the Registration Statement or related prospectus; (ii) the issuance by the SEC
or any other federal or state governmental authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose; (iii) receipt of any notification with respect
to the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the happening of any event
that makes any statement made in such Registration Statement or related
prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires the making of any
changes in the Registration Statement, related prospectus or documents so that,
in the case of a Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; (v) the declaration by
the SEC of the effectiveness of a Registration Statement; and (vi) the Company's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate, and the Company shall promptly make available to
the Investor any such supplement or amendment to the related prospectus. The
Company shall not deliver to the Investor any Put Notice during the continuation
of any of the foregoing events. While in possession of material non-public
information received from the Company, the Investor shall not dispose of any
Registrable Securities until such information is disclosed to the public (a
"Restricted Period"); provided that, if such Restricted Period exceeds one
hundred twenty (120) days, the liquidated damages described in Section 1.1(c) of
the Registration Rights Agreement shall be increased to three percent (3.0%)
until such Restricted Period shall have elapsed.
Section 6.9. Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or
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substantially all of the assets of the Company to, another entity unless the
resulting successor or acquiring entity (if not the Company) assumes by written
instrument the obligation to deliver to the Investor such shares of stock and/or
securities as the Investor is entitled to receive pursuant to this Agreement and
the Warrants.
Section 6.10. Issuance of Put Shares, Warrant Shares and Additional
Shares. The sale of the Put Shares and the issuance of the Warrant Shares
pursuant to exercise of the Warrants shall be made in accordance with the
provisions and requirements of Regulation D and any applicable state law.
Issuance of the Warrant Shares pursuant to exercise of the Warrants through a
cashless exercise shall be made in accordance with the provisions and
requirements of Section 3(a)(9) under the Securities Act and any applicable
state law.
Section 6.11. Legal Opinion on Subscription Date. The Company's
independent counsel shall deliver to the Investor on the Subscription Date an
opinion in the form of Exhibit D, except for paragraph 7 thereof.
Section 6.12. No Similar Arrangement; Right of First Refusal. The Company
shall refrain from entering into any other agreements, arrangements or
understandings granting to the Company the right to sell shares of its
securities to one or more investors in placements exempt from registration under
the Securities Act until thirty (30) calendar days after this Agreement is
terminated pursuant to Section 2.4 hereof (the "Exclusivity Period"). The
Exclusivity Period shall not apply to an issuance of securities exempt from
registration under the Securities Act by the Company in connection with any
strategic investment, corporate partnering arrangements, or other situations in
which the investment in the Company is not strictly a financial one. If the
Company, for the purpose of obtaining any additional financing, wishes to sell
shares of its securities in placements exempt from registration under the
Securities Act during the Exclusivity Period (a "Sale") to a party other than
the Investor (the "Third Party"), the Company shall first offer (the "Offer") to
the Investor, in writing, the right to purchase such shares (the "Offered
Shares") at the bona fide price offered by the Third Party (the "Offer Price").
The Offer shall grant the Investor the right during the five (5) Trading Days
immediately following the date of the Offer to elect to purchase any or all of
the Offered Shares. The Company, in connection with such a Sale, shall refrain
from circumventing or attempting to circumvent the Investor's right of first
refusal by way of making such a Sale to any of its affiliates without first
making an Offer to the Investor. If the Investor so exercises it's right to
purchase any or all of the Offered Shares, the purchase will be treated as a Put
except that the purchase price for the Offered Shares shall be the Offer Price.
The closing and method of payment shall be as provided for in Section 2.2 hereof
and the Closing Date shall be seven (7) Trading Days after the Investor
exercises such right. If the Investor fails to exercise its right to purchase
any or all of the Offered Shares, then during the thirty (30) calendar days
immediately following the expiration of such right, the Company shall be free to
sell any or all of the Offered Shares to a purchaser for a purchase price not
lower than the Offer Price payable on terms and conditions that are not more
favorable to such purchaser than those contained in the Offer. In the event that
the Company effects a Sale to a Third Party, the Investor may immediately
terminate this Agreement.
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ARTICLE VII
CONDITIONS TO DELIVERY OF
PUT NOTICES AND CONDITIONS TO CLOSING
Section 7.1. Conditions Precedent to the Obligation of the Company to
Issue and Sell Common Stock. The obligation hereunder of the Company to issue
and sell the Put Shares to the Investor incident to each Closing is subject to
the satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(a) Accuracy of the Investor's Representation and Warranties. The
representations and warranties of the Investor shall be true and
correct in all material respects as of the date of this Agreement
and as of the date of each such Closing as though made at each such
time.
(b) Performance by the Investor. The Investor shall have performed,
satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Investor at or prior to
such Closing.
Section 7.2. Conditions Precedent to the Right of the Company to Deliver a
Put Notice and the Obligation of the Investor to Purchase Put Shares. Following
completion of the Early Put, the right of the Company to deliver a Put Notice
and the obligation of the Investor hereunder to acquire and pay for the Put
Shares incident to a Closing is subject to the satisfaction, on (i) the
applicable Put Date and (ii) the applicable Closing Date (each a "Condition
Satisfaction Date"), of each of the following conditions:
(a) Registration of the Registrable Securities with the SEC. As set
forth in the Registration Rights Agreement, the Company shall have
filed with the SEC either:
(i) a Registration Statement covering the resale of the Common
Stock purchased by the Investor through the Early Put that
shall have been declared effective by the SEC in no event
later than ninety (90) days after the Subscription Date, and a
Registration Statement covering the resale of the Common Stock
purchased by the Investor through all subsequent Puts that
shall have been declared effective by the SEC prior to any
subsequent Put; or
(ii) a Combined Registration Statement (as defined in the
Registration Rights Agreement) that shall have been declared
effective by the SEC in no event later than ninety (90) days
after the Subscription Date.
(b) Effective Registration Statement. As set forth in the
Registration Rights Agreement, the Registration Statement(s) shall
have previously become effective and shall remain effective on each
Condition Satisfaction Date and (i) neither the Company nor the
Investor shall have received notice that the SEC has issued or
intends to issue a stop order with respect to a Registration
Statement or that the SEC otherwise has suspended or withdrawn the
effectiveness of a Registration Statement, either temporarily or
permanently, or intends or has threatened to do so
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(unless the SEC's concerns have been addressed and the Investor is
reasonably satisfied that the SEC no longer is considering or
intends to take such action), (ii) no other suspension of the use or
withdrawal of the effectiveness of such Registration Statement or
related prospectus shall exist and (iii) with respect to the second
Put only, the Company shall have notified the Investor in accordance
with Section 6.8 that the Registration Statement covering the
Registrable Securities purchased by the Investor through the Early
Put has been declared effective by the SEC and (iv) at least 30 days
shall have elapsed since the Initial Registration Statement (as
defined in the Registration Rights Agreement) has been declared
effective by the SEC.
(c) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and
correct as of each Condition Satisfaction Date as though made at
each such time (except for representations and warranties
specifically made as of a particular date).
(d) Performance by the Company. The Company shall have performed,
satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement, the
Registration Rights Agreement and the Warrants to be performed,
satisfied or complied with by the Company at or prior to each
Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered,
promulgated or adopted by any court or governmental authority of
competent jurisdiction that prohibits the transactions contemplated
by this Agreement or otherwise has a Material Adverse Effect, and no
actions, suits or proceedings shall be in progress, pending or
threatened by any Person, that seek to enjoin or prohibit the
transactions contemplated by this Agreement or otherwise could
reasonably be expected to have a Material Adverse Effect. For
purposes of this paragraph (e), no proceeding shall be deemed
pending or threatened unless one of the parties has received written
or oral notification thereof prior to the applicable Closing Date.
(f) No Suspension of Trading In or Delisting of Common Stock. The
trading of the Common Stock shall not have been suspended by the
SEC, the Principal Market or the NASD and the Common Stock shall
have been approved for listing or quotation on and shall not have
been delisted from the Principal Market. The issuance of shares of
Common Stock with respect to the applicable Closing, if any, shall
not violate the shareholder approval requirements of the Principal
Market.
(g) Legal Opinion. The Company shall have caused to be delivered to
the Investor, within five (5) Trading Days of the effective date of
a Registration Statement, an opinion of the Company's independent
counsel in the form of Exhibit D hereto, addressed to the Investor.
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(h) Due Diligence. Pursuant to Section 7.3, the Investor shall not
have a material dispute with the Company as to the adequacy of the
disclosure contained in the Registration Statement.
(i) Five Percent Limitation. On each Closing Date, the number of Put
Shares then to be purchased by the Investor shall not exceed the
number of such shares that, when aggregated with all other shares of
Common Stock and Registrable Securities then owned by the Investor
beneficially or deemed beneficially owned by the Investor, would
result in the Investor owning no more than 4.9% of all of such
Common Stock as would be outstanding on such Closing Date, as
determined in accordance with Section 13(d) of the Exchange Act and
the regulations promulgated thereunder. For purposes of this
Section, in the event that the amount of Common Stock outstanding as
determined in accordance with Section 13(d) of the Exchange Act and
the regulations promulgated thereunder is greater on a Closing Date
than on the date upon which the Put Notice associated with such
Closing Date is given, the amount of Common Stock outstanding on
such Closing Date shall govern for purposes of determining whether
the Investor, when aggregating all purchases of Common Stock made
pursuant to this Agreement and, if any, Warrant Shares would own
more than 4.9% of the Common Stock following such Closing Date.
(j) Minimum Bid Price. The Bid Price equals or exceeds $2.00 on each
of the seven (7) Trading Days immediately preceding the Subscription
Date and on each Trading Day during any Put Notice Period.
(k) Minimum Average Daily Trading Value. The average of the Daily
Trading Value during the twenty-two (22) Trading Days immediately
preceding the applicable Put Notice Period equals or exceeds
$160,000.
(l) No Knowledge. The Company shall have no knowledge of any event
more likely than not to have the effect of causing any Registration
Statement to be suspended or otherwise ineffective (which event is
more likely than not to occur within the fifteen Trading Days
following the Trading Day on which such notice is deemed delivered).
(m) Minimum Time Interval. The Minimum Time Interval shall have
elapsed since the immediately preceding Put Date.
(n) Shareholder Vote. The issuance of shares of Common Stock with
respect to the applicable Closing, if any, shall not violate the
shareholder approval requirements of the Principal Market.
(o) Other. On each Condition Satisfaction Date, the Investor shall
have received and been reasonably satisfied with such other
certificates and documents as shall have been reasonably requested
by the Investor in order for the Investor to confirm the Company's
satisfaction of the conditions set forth in this Section 7.2.,
including, without limitation, a certificate in substantially the
form and substance
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of Exhibit E hereto, executed in either case by an executive officer
of the Company and to the effect that all the conditions to such
Closing shall have been satisfied as at the date of each such
certificate.
Section 7.3. Due Diligence Review; Non-Disclosure of Non-Public
Information.
(a) The Company shall make available for inspection and review by
the Investor, advisors to and representatives of the Investor (who
may or may not be affiliated with the Investor and who are
reasonably acceptable to the Company), and any Underwriter, any
Registration Statement or amendment or supplement thereto or any
blue sky, NASD or other filing, all financial and other records, all
SEC Documents and other filings with the SEC, and all other
corporate documents and properties of the Company as may be
reasonably necessary for the purpose of such review, and cause the
Company's officers, directors and employees to supply all such
information reasonably requested by the Investor or any such
representative, advisor or Underwriter in connection with such
Registration Statement (including, without limitation, in response
to all questions and other inquiries reasonably made or submitted by
any of them), prior to and from time to time after the filing and
effectiveness of such Registration Statement for the sole purpose of
enabling the Investor and such representatives, advisors and
Underwriters and their respective accountants and attorneys to
conduct initial and ongoing due diligence with respect to the
Company and the accuracy of such Registration Statement.
(b) Each of the Company, its officers, directors, employees and
agents shall in no event disclose non-public information to the
Investor, advisors to or representatives of the Investor unless
prior to disclosure of such information the Company identifies such
information as being non-public information and provides the
Investor, such advisors and representatives with the opportunity to
accept or refuse to accept such non-public information for review.
The Company may, as a condition to disclosing any non-public
information hereunder, require the Investor's advisors and
representatives to enter into a confidentiality agreement in form
reasonably satisfactory to the Company and the Investor.
(c) Nothing herein shall require the Company to disclose non-public
information to the Investor or its advisors or representatives, and
the Company represents that it does not disseminate non-public
information to any investors who purchase stock in the Company in a
public offering, to money managers or to securities analysts;
provided, however, that notwithstanding anything herein to the
contrary, the Company shall, as hereinabove provided, immediately
notify the advisors and representatives of the Investor and any
Underwriters of any event or the existence of any circumstance
(without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting non-public
information (whether or not requested of the Company specifically or
generally during the course of due diligence by such persons or
entities), which, if not disclosed in the prospectus included in the
applicable Registration Statement would cause such prospectus to
include a material misstatement or to omit a material fact required
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to be stated therein in order to make the statements, therein, in
light of the circumstances in which they were made, not misleading.
Nothing contained in this Section 7.3 shall be construed to mean
that such persons or entities other than the Investor (without the
written consent of the Investor prior to disclosure of such
information) may not obtain non-public information in the course of
conducting due diligence in accordance with the terms and conditions
of this Agreement and nothing herein shall prevent any such persons
or entities from notifying the Company of their opinion that based
on such due diligence by such persons or entities, that such
Registration Statement contains an untrue statement of a material
fact or omits a material fact required to be stated in such
Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not
misleading.
ARTICLE VIII
LEGENDS
Section 8.1. Legends. Each of the Warrant and, unless otherwise provided
below, each certificate representing Registrable Securities will bear the
following legend (the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE
UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH
REGISTRATION. THE HOLDER OF THIS CERTIFICATE IS THE BENEFICIARY OF CERTAIN
OBLIGATIONS OF THE COMPANY SET FORTH IN A STOCK PURCHASE AGREEMENT, DATED
AS OF AUGUST 30, 1999, BETWEEN FRANKLIN TELECOMMUNICATIONS CORP. AND
CRESCENT INTERNATIONAL LTD. A COPY OF THE PORTION OF THE AFORESAID
AGREEMENT EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM FRANKLIN
TELECOMMUNICATIONS CORP.'S EXECUTIVE OFFICES.
As soon as practicable after the execution and delivery hereof, but in any
event within five (5) Trading Days hereafter, the Company shall issue to the
transfer agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock upon the Company's appointment of any such
substitute or replacement transfer agent) instructions in substantially the form
of Exhibit F hereto, with a copy to the Investor. Other than as required as a
result of change in law, such instructions shall be irrevocable by the Company
from and after
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the date hereof or from and after the issuance thereof to any such substitute or
replacement transfer agent, as the case may be, except as otherwise expressly
provided in the Registration Rights Agreement. It is the intent and purpose of
such instructions, as provided therein, to require the transfer agent for the
Common Stock from time to time upon transfer of Registrable Securities by the
Investor to issue certificates evidencing such Registrable Securities free of
the Legend during the following periods and under the following circumstances
and without consultation by the transfer agent with the Company or its counsel
and without the need for any further advice or instruction or documentation to
the transfer agent by or from the Company or its counsel or the Investor:
(a) At any time after the applicable Effective Date, upon surrender
of one or more certificates evidencing Common Stock that bear the
Legend, to the extent accompanied by a notice requesting the
issuance of new certificates free of the Legend to replace those
surrendered; provided that (i) the applicable Registration Statement
shall then be effective and (ii) if reasonably requested by the
transfer agent the Investor confirms to the transfer agent that the
Investor has transferred the Registrable Securities pursuant to such
Registration Statement and has complied with the prospectus delivery
requirement.
(b) At any time upon any surrender of one or more certificates
evidencing Registrable Securities that bear the Legend, to the
extent accompanied by a notice requesting the issuance of new
certificates free of the Legend to replace those surrendered and
containing representations that the Investor is permitted to dispose
of such Registrable Securities without limitation as to amount or
manner of sale pursuant to Rule 144(k) under the Securities Act.
Section 8.2. No Other Legend or Stock Transfer Restrictions. No legend
other than the one specified in Section 8.1 has been or shall be placed on the
share certificates representing the Common Stock and no instructions or "stop
transfers orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article VIII.
Section 8.3. Investor's Compliance. Nothing in this Article VIII shall
affect in any way the Investor's obligations under any agreement to comply with
all applicable securities laws upon resale of the Common Stock.
ARTICLE IX
INDEMNIFICATION; ARBITRATION
Section 9.1. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Investor,
its partners, affiliates, officers, directors, employees, and duly
authorized agents, and each Person or entity, if any, who controls
the Investor within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act, together with
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its controlling persons from and against any Damages, joint or
several, and any action in respect thereof to which the Investor,
its partners, affiliates, officers, directors, employees, and duly
authorized agents, and any such controlling person becomes subject
to, resulting from, arising out of or relating to any
misrepresentation, breach of warranty or nonfulfillment of or
failure to perform any covenant or agreement on the part of Company
contained in this Agreement, as such Damages are incurred, unless
such Damages result primarily from the Investor's gross negligence,
recklessness or bad faith in performing its obligations under this
Agreement; provided, however, that the maximum aggregate liability
of the Company shall be limited to the amount actually invested by
the Investor under this Agreement, and provided, further, that in no
event shall this provision be deemed to limit any rights to
indemnification arising under the Registration Rights Agreement.
(b) The Investor agrees to indemnify and hold harmless the Company,
its partners, affiliates, officers, directors, employees, and duly
authorized agents, and each Person or entity, if any, who controls
the Company within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act, together with its controlling
persons from and against any Damages, joint or several, and any
action in respect thereof to which the Company, its partners,
affiliates, officers, directors, employees, and duly authorized
agents, and any such controlling person becomes subject to,
resulting from, arising out of or relating to any misrepresentation,
breach of warranty or nonfulfillment of or failure to perform any
covenant or agreement on the part of the Investor contained in this
Agreement, as such Damages are incurred, unless such Damages result
primarily from the Company's gross negligence, recklessness or bad
faith in performing its obligations under this Agreement; provided,
however, that the maximum aggregate liability of the Investor shall
be limited to the amount actually invested by the Investor under
this Agreement, and provided, further, that in no event shall this
provision be deemed to limit any rights to indemnification arising
under the Registration Rights Agreement.
Section 9.2. Method of Asserting Indemnification Claims. All claims for
indemnification by any Indemnified Party (as defined below) under Section 9.1
shall be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which any person
claiming indemnification under any provision of Section 9.1 (an
"Indemnified Party") might seek indemnity under Section 9.1 is
asserted against or sought to be collected from such Indemnified
Party by a person other than the Company, the Investor or any
affiliate of the Company (a "Third Party Claim"), the Indemnified
Party shall deliver a written notification, enclosing a copy of all
papers served, if any, and specifying the nature of and basis for
such Third Party Claim and for the Indemnified Party's claim for
indemnification that is being asserted under any provision of
Section 9.1 against any person (the "Indemnifying Party"), together
with the amount or, if not then reasonably ascertainable, the
estimated amount, determined in good faith, of such Third Party
Claim (a "Claim Notice") with
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reasonable promptness to the Indemnifying Party. If the Indemnified
Party fails to provide the Claim Notice with reasonable promptness
after the Indemnified Party receives notice of such Third Party
Claim, the Indemnifying Party shall not be obligated to indemnify
the Indemnified Party with respect to such Third Party Claim to the
extent that the Indemnifying Party's ability to defend has been
irreparably prejudiced by such failure of the Indemnified Party. The
Indemnifying Party shall notify the Indemnified Party as soon as
practicable within the period ending thirty (30) calendar days
following receipt by the Indemnifying Party of either a Claim Notice
or an Indemnity Notice (as defined below) (the "Dispute Period")
whether the Indemnifying Party disputes its liability or the amount
of its liability to the Indemnified Party under Section 9.1 and
whether the Indemnifying Party desires, at its sole cost and
expense, to defend the Indemnified Party against such Third Party
Claim.
(i) If the Indemnifying Party notifies the Indemnified Party
within the Dispute Period that the Indemnifying Party desires
to defend the Indemnified Party with respect to the Third
Party Claim pursuant to this Section 9.2(a), then the
Indemnifying Party shall have the right to defend, with
counsel reasonably satisfactory to the Indemnified Party, at
the sole cost and expense of the Indemnifying Party, such
Third Party Claim by all appropriate proceedings, which
proceedings shall be vigorously and diligently prosecuted by
the Indemnifying Party to a final conclusion or will be
settled at the discretion of the Indemnifying Party (but only
with the consent of the Indemnified Party in the case of any
settlement that provides for any relief other than the payment
of monetary damages or that provides for the payment of
monetary damages as to which the Indemnified Party shall not
be indemnified in full pursuant to Section 9.1). The
Indemnifying Party shall have full control of such defense and
proceedings, including any compromise or settlement thereof;
provided, however, that the Indemnified Party may, at the sole
cost and expense of the Indemnified Party, at any time prior
to the Indemnifying Party's delivery of the notice referred to
in the first sentence of this clause (i), file any motion,
answer or other pleadings or take any other action that the
Indemnified Party reasonably believes to be necessary or
appropriate to protect its interests; and provided further,
that if requested by the Indemnifying Party, the Indemnified
Party will, at the sole cost and expense of the Indemnifying
Party, provide reasonable cooperation to the Indemnifying
Party in contesting any Third Party Claim that the
Indemnifying Party elects to contest. The Indemnified Party
may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party
pursuant to this clause (i), and except as provided in the
preceding sentence, the Indemnified Party shall bear its own
costs and expenses with respect to such participation.
Notwithstanding the foregoing, the Indemnified Party may take
over the control of the defense or settlement of a Third Party
Claim at any time if it irrevocably waives its right to
indemnity under Section 9.1 with respect to such Third Party
Claim.
24
<PAGE>
(ii) If the Indemnifying Party fails to notify the Indemnified
Party within the Dispute Period that the Indemnifying Party
desires to defend the Third Party Claim pursuant to Section
9.2(a), or if the Indemnifying Party gives such notice but
fails to prosecute vigorously and diligently or settle the
Third Party Claim, or if the Indemnifying Party fails to give
any notice whatsoever within the Dispute Period, then the
Indemnified Party shall have the right to defend, at the sole
cost and expense of the Indemnifying Party, the Third Party
Claim by all appropriate proceedings, which proceedings shall
be prosecuted by the Indemnified Party in a reasonable manner
and in good faith or will be settled at the discretion of the
Indemnified Party (with the consent of the Indemnifying Party,
which consent will not be unreasonably withheld). The
Indemnified Party will have full control of such defense and
proceedings, including any compromise or settlement thereof;
provided, however, that if requested by the Indemnified Party,
the Indemnifying Party will, at the sole cost and expense of
the Indemnifying Party, provide reasonable cooperation to the
Indemnified Party and its counsel in contesting any Third
Party Claim which the Indemnified Party is contesting.
Notwithstanding the foregoing provisions of this clause (ii),
if the Indemnifying Party has notified the Indemnified Party
within the Dispute Period that the Indemnifying Party disputes
its liability or the amount of its liability hereunder to the
Indemnified Party with respect to such Third Party Claim and
if such dispute is resolved in favor of the Indemnifying Party
in the manner provided in clause (iii) below, the Indemnifying
Party will not be required to bear the costs and expenses of
the Indemnified Party's defense pursuant to this clause (ii)
or of the Indemnifying Party's participation therein at the
Indemnified Party's request, and the Indemnified Party shall
reimburse the Indemnifying Party in full for all reasonable
costs and expenses incurred by the Indemnifying Party in
connection with such litigation. The Indemnifying Party may
participate in, but not control, any defense or settlement
controlled by the Indemnified Party pursuant to this clause
(ii), and the Indemnifying Party shall bear its own costs and
expenses with respect to such participation.
(iii) If the Indemnifying Party notifies the Indemnified Party
that it does not dispute its liability or the amount of its
liability to the Indemnified Party with respect to the Third
Party Claim under Section 9.1 or fails to notify the
Indemnified Party within the Dispute Period whether the
Indemnifying Party disputes its liability or the amount of its
liability to the Indemnified Party with respect to such Third
Party Claim, the Damages in the amount specified in the Claim
Notice shall be conclusively deemed a liability of the
Indemnifying Party under Section 9.1 and the Indemnifying
Party shall pay the amount of such Damages to the Indemnified
Party on demand. If the Indemnifying Party has timely disputed
its liability or the amount of its liability with respect to
such claim, the Indemnifying Party and the Indemnified Party
shall proceed in good faith to negotiate a resolution of such
dispute, and if not resolved
25
<PAGE>
through negotiations within the period of thirty (30) calendar
days immediately following the Dispute Period, such dispute
shall be resolved by arbitration in accordance with Section
9.3.
(b) In the event any Indemnified Party should have a claim under
Section 9.1 against the Indemnifying Party that does not involve a
Third Party Claim, the Indemnified Party shall deliver a written
notification of a claim for indemnity under Section 9.1 specifying
the nature of and basis for such claim, together with the amount or,
if not then reasonably ascertainable, the estimated amount,
determined in good faith, of such claim (an "Indemnity Notice") with
reasonable promptness to the Indemnifying Party. The failure by any
Indemnified Party to give the Indemnity Notice shall not impair such
party's rights hereunder except to the extent that the Indemnifying
Party demonstrates that it has been irreparably prejudiced thereby.
If the Indemnifying Party notifies the Indemnified Party that it
does not dispute the claim or the amount of the claim described in
such Indemnity Notice or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes
the claim or the amount of the claim described in such Indemnity
Notice, the Damages in the amount specified in the Indemnity Notice
will be conclusively deemed a liability of the Indemnifying Party
under Section 9.1 and the Indemnifying Party shall pay the amount of
such Damages to the Indemnified Party on demand. If the Indemnifying
Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the
Indemnified Party shall proceed in good faith to negotiate a
resolution of such dispute, and if not resolved through negotiations
within the period of thirty (30) calendar days immediately following
the Dispute Period, such dispute shall be resolved by arbitration in
accordance with Section 9.3.
Section 9.3. Arbitration. Any dispute under this Agreement (including,
without limitation, pursuant to Section 9.2) or the Warrants shall be submitted
to arbitration and shall be finally and conclusively determined by the decision
of a board of arbitration consisting of three (3) members (the "Board of
Arbitration") selected as hereinafter provided. Each of the Company, on the one
hand, and the Investor and/or any other Indemnified Party, on the other hand,
shall select one (1) member and the third member shall be selected by mutual
agreement of the other members, or if the other members fail to reach agreement
on a third member within twenty (20) days after their selection, such third
member shall thereafter be selected by the American Arbitration Association upon
application made to it for such purpose by the other members. The Board of
Arbitration shall meet on consecutive business days in New York City, New York
or such other place as a majority of the members of the Board of Arbitration
determines more appropriate, and shall reach and render a decision in writing
(concurred in by a majority of the members of the Board of Arbitration). In
connection with rendering its decision, the Board of Arbitration shall adopt and
follow such rules and procedures as a majority of the members of the Board of
Arbitration deems necessary or appropriate. To the extent practicable, decisions
of the Board of Arbitration shall be rendered no more than thirty (30) calendar
days following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to the Company and
the Investor and/or any other Indemnified Party. Any decision made by the Board
of Arbitration (either prior to or after the
26
<PAGE>
expiration of such thirty (30) calendar day period) shall be final, binding and
conclusive on the Company and the Investor and/or any other Indemnified Party
and entitled to be enforced to the fullest extent permitted by law and entered
in any court of competent jurisdiction. The non-prevailing party to any
arbitration shall bear the expense of both parties in relation thereto,
including but not limited to the parties' attorneys' fees, if any, and the
expenses and fees of the Board of Arbitration.
ARTICLE X
MISCELLANEOUS
Section 10.1. Put Fees and Transaction Costs. In connection with the
execution of this agreement the following Put Fees and Transaction Costs (as
defined below) are payable by the Company.
(a) Put Fees. The Company shall pay certain fees (the "Put Fees") to
the payee entities in accordance with Schedule 10.1. Crescent is
authorized by the Company to retain and to pay on behalf of the
Company Put Fees, to the payee entities in accordance with Schedule
10.1.
(b) Transaction Costs. The fees, expenses and disbursements of the
Investor's counsel (the "Investor Legal Fees") shall be paid as
follows: (i) the Investor shall pay the initial $10,000 of Investor
Legal Fees; (ii) the Company shall pay all Investor Legal Fees in
excess of $10,000 and less than $20,000; and (iii) the Investor
shall pay all Investor Legal Fees in excess of $20,000. The Company
and the Investor shall share equally all the Investor due diligence
costs in connection with the consummation of this Agreement and the
transactions contemplated hereby (the "Due Diligence Costs," and
together with the Investor Legal Fees, the "Transaction Costs"),
provided that the Company's share of the Due Diligence Costs shall
not exceed $10,000. The Company shall pay to the Investor the
Company's share of the Transaction Costs on the Subscription Date,
to the extent such share of the Transaction Costs can be determined
on the Subscription Date. The Company shall pay its share of the
remaining Transaction Costs to the Investor not later than ten (10)
days after receipt of notice from the Investor that such amount is
due. The Company agrees to pay its own expenses incident to the
performance of its obligations hereunder.
Section 10.2. Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on the Principal Market on any given Trading Day for the purposes
of this Agreement shall be the Bloomberg L.P. The written mutual consent of the
Investor and the Company shall be required to employ any other reporting entity.
Section 10.3. Brokerage. Except as disclosed in Section 10.1, each of the
parties hereto represents that it has had no dealings in connection with this
transaction with any finder or broker which would impose a legal obligation to
pay any fee or commission. The Company on
27
<PAGE>
the one hand, and the Investor, on the other hand, agree to indemnify the other
against and hold the other harmless from any and all liabilities to any persons
claiming brokerage commissions or finder's fees on account of services purported
to have been rendered on behalf of the indemnifying party in connection with
this Agreement or the transactions contemplated hereby.
Section 10.4. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice given in accordance herewith. Any notice or
other communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The addresses for such communications shall be:
If to the Company:
Franklin Telecommunications Corp.
733 Lakefield Road
Westlake Village, CA 91361
Attention: Frank W. Peters
Telephone: (805) 373-8868
Facsimile: (805) 373-7373
with a copy (which shall not constitute notice) to:
Hadden & Zepfel LLP
4675 MacArthur Court, Suite 710
Newport Beach, CA 92660
Attention: Robert J. Zepfel, Esq.
Telephone: (949) 752-6100
Facsimile: (949) 752-6161
if to the Investor:
Crescent International Ltd.
c/o GreenLight (Switzerland) SA
84, av Louis-Casai, P.O. Box 42
1216 Geneva, Cointrin
Switzerland
Attention: Melvyn Craw/Maxi Brezzi
Telephone: +41 22 791 72 56
Facsimile: +41 22 929 53 94
28
<PAGE>
with a copy (which shall not constitute notice) to:
Rogers & Wells LLP
200 Park Avenue, 52nd Floor
New York, NY 10166
Attention: Sara Hanks, Esq./Earl S. Zimmerman, Esq.
Telephone: (212) 878-8000
Facsimile: (212) 878-8375
Either party hereto may from time to time change its address or facsimile number
for notices under this Section by giving at least ten (10) days' prior written
notice of such changed address or facsimile number to the other party hereto.
Section 10.5. Assignment. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, the Investor's interest in this Agreement
may be assigned at any time, in whole or in part, to any affiliate of the
Investor upon the prior written consent of the Company, which consent shall not
to be unreasonably withheld provided, however, that any such assignment or
transfer shall relieve the Investor of its duties under this Agreement only upon
performance thereof by any such assignee or transferee.
Section 10.6. Amendment; No Waiver. No party shall be liable or bound to
any other party in any manner by any warranties, representations or covenants
except as specifically set forth in this Agreement or therein. Except as
expressly provided in this Agreement, neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated other than by a written
instrument signed by both parties hereto. The failure of the either party to
insist on strict compliance with this Agreement, or to exercise any right or
remedy under this Agreement, shall not constitute a waiver of any rights
provided under this Agreement, nor estop the parties from thereafter demanding
full and complete compliance nor prevent the parties from exercising such a
right or remedy in the future.
Section 10.7. Annexes and Exhibits; Entire Agreement. All annexes and
exhibits to this Agreement are incorporated herein by reference and shall
constitute part of this Agreement. This Agreement, the Warrants and the
Registration Rights Agreement set forth the entire agreement and understanding
of the parties relating to the subject matter hereof and thereof and supersede
all prior and contemporaneous agreements, negotiations and understandings
between the parties, both oral and written, relating to the subject matter
hereof.
Section 10.8. Survival. The provisions of Articles VI, VIII, IX and X, and
of Section 7.3, shall survive the termination of this Agreement.
Section 10.9. Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
29
<PAGE>
Section 10.10. Title and Subtitles. The titles and subtitles used in this
Agreement are used for the convenience of reference and are not to be considered
in construing or interpreting this Agreement.
Section 10.11. Counterparts. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument.
Section 10.12. Choice of Law. This Agreement shall be construed under the
laws of the State of New York.
Section 10.13. Other Expenses. In the event that a dispute between the
parties is not determined by a Board of Arbitration, the non-prevailing party in
any action, suit or proceeding shall bear all investigative, legal and other
expenses reasonably incurred in connection with, and any and all amounts paid in
defense or settlement of such action, suit or proceeding.
30
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the undersigned, thereunto duly authorized, as of the date first set
forth above.
Crescent International Ltd.
By: /s/Omar Ali /s/ Maxi Brezzi
---------------------------------------------------
GreenLight (Switzerland) S.A. as Investor's manager
Name:
Title:
Franklin Telecommunications Corp.
By: /s/ Tom Russell
---------------------------------------------------
Name: Tom Russell
Title: VP CFO
31
<PAGE>
SCHEDULE 10.1
The Company shall pay to the Payee entities the following Put Fees and
Transaction Costs under Section 10.1, which Crescent shall then allocate as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Events Fees / Amount on which the fee is Payee Entity Amount
Triggering the Transaction calculated
payment Costs
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Subscription Put Fee Maximum Commitment Amount GreenLight (Switzerland) S.A. $56,875.00
Date
- ---------------------------------------------------------------------------------------------------------------------------
Maximum Commitment Amount The Volume Investor, Inc. $20,562
3 Piedmont Center
Suite 310
Atlanta GA 30305
- ---------------------------------------------------------------------------------------------------------------------------
Maximum Commitment Amount Frank Mauro $36,313
3 Piedmont Center
Suite 210
Atlanta GA 30305
- ---------------------------------------------------------------------------------------------------------------------------
Closing Date Put Fee The Investment Amount of the GreenLight (Switzerland) S.A 1.125%
for the Early Early Put Av. Louis-Casai
Put CH 1216 Cointrin, Geneva
Switzerland.
- ---------------------------------------------------------------------------------------------------------------------------
The Investment Amount of the The Volume Investor, Inc. 0.407%
Early Put 3 Piedmont Center
Suite 310
Atlanta GA 30305
- ---------------------------------------------------------------------------------------------------------------------------
The Investment Amount of the Frank Mauro 0.718%
Early Put 3 Piedmont Center
Suite 210
Atlanta GA 30305
- ---------------------------------------------------------------------------------------------------------------------------
Closing Date Put Fee Investment Amount of the Put GreenLight (Switzerland) S.A. 1.125%
for a Put Av. Louis-Casai
CH 1216 Cointrin, Geneva
Switzerland.
- ---------------------------------------------------------------------------------------------------------------------------
Investment Amount of the Put The Volume Investor, Inc. 0.407%
3 Piedmont Center
Suite 310
Atlanta GA 30305
- ---------------------------------------------------------------------------------------------------------------------------
Investment Amount of the Put Frank Mauro 0.718%
3 Piedmont Center
Suite 210
Atlanta GA 30305
- ---------------------------------------------------------------------------------------------------------------------------
Subscription Legal Fees Investor Legal Fees Crescent International Ltd. Investor Legal Fees
Date C/o GreenLight (Switzerland) less $10,000 up to
S.A. Av. Louis-Casai a maximum of $10,000
CH 1216 Cointrin, Geneva
Switzerland.
- ---------------------------------------------------------------------------------------------------------------------------
Subscription Due Diligence Due Diligence Costs with a GreenLight (Switzerland) S.A. 50% with a maximum
Date Costs maximum amount of $25,000 Av. Louis-Casai of $10,000
CH 1216 Cointrin, Geneva
Switzerland.
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
32
<PAGE>
Incentive Warrant Allocation
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Events Fees / Amount on which the fee is Receiving Entity Warrant Shares
Triggering the Transaction calculated
issuance Costs
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Subscription Incentive N/A Crescent International Ltd. 340,000
Date Warrant GreenLight (Switzerland) S.A.
Av. Louis-Casai
CH 1216 Cointrin, Geneva
Switzerland.
- ---------------------------------------------------------------------------------------------------------------------------
Incentive N/A Frank Mauro 60,000
Warrant 3 Piedmont Center
Suite 210
Atlanta GA 30305
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
EXHIBIT A
FORM OF REGISTRATION RIGHTS AGREEMENT
34
<PAGE>
EXHIBIT B
FORM OF INCENTIVE WARRANT
35
<PAGE>
EXHIBIT C
FORM OF EARLY PUT WARRANT
36
<PAGE>
EXHIBIT D
FORM OF OPINION OF THE COMPANY'S INDEPENDENT COUNSEL
August ___, 1999
Crescent International Ltd.
c/o GreenLight (Switzerland) SA
84, av Louis-Casai, P.O. Box 42
1216 Geneva, Cointrin
Switzerland
Re: Stock Purchase Agreement Between Crescent International Ltd. and Franklin
Telecommunications Corp.
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section [6.11] [7.2(g)] of
the Stock Purchase Agreement by and between Crescent International Ltd., a
Bermuda entity (the "Investor") and Franklin Telecommunications Corp. (the
"Company"), dated August ___, 1999 (the "Stock Purchase Agreement"), which
provides for the issuance and sale by the Company of up to _________ shares of
Common Stock of the Company (the "Put Shares"), a warrant to purchase up to
________ shares of Common Stock of the Company (the "Incentive Warrant") and
warrants to purchase a number of shares to be determined in accordance with the
terms of such warrants (the "Early Put Warrants", and together with the
Incentive Warrant, the "Warrants") (the shares of Common Stock issued or
issuable pursuant to exercise of the Warrants are referred to herein as the
"Warrant Shares"). All terms used herein have the meanings defined for them in
the Stock Purchase Agreement unless otherwise defined herein.
We have acted as counsel for the Company in connection with the
negotiation of the Stock Purchase Agreement, the Warrants, and the Registration
Rights Agreement between the Investor and the Company, dated August ___, 1999
(the "Registration Rights Agreement" and together with the Stock Purchase
Agreement, the "Agreements"). As counsel, we have made such legal and factual
examinations and inquires as we have deemed advisable or necessary for the
purpose of rendering this opinion. In addition, we have examined, among other
things, originals or copies of such corporate records of the Company,
certificates of public officials and such other documents and questions of law
that we consider necessary or advisable for the purpose of rendering this
opinion. In such examination we have assumed the genuineness of all signatures
on original documents, the authenticity and completeness of all documents
submitted to us as originals, the conformity to original documents of all copies
submitted to us as copies thereof, the legal capacity of natural persons, and
the due execution and delivery of all documents (except as to due execution and
delivery by the Company) where due execution and delivery are a prerequisite to
the effectiveness thereof.
As used in this opinion, the expression "to our knowledge" refers to the
current actual knowledge of the attorneys of this firm who have worked on
matters for the Company solely in connection with the Agreements and the
Warrants and the transactions contemplated thereby.
37
<PAGE>
For purposes of this opinion, we have assumed that you have all requisite
power and authority, and have taken any and all necessary corporate action,
to execute and deliver the Agreements, and we are assuming that the
representations and warranties made by the Investor in the Agreements and
pursuant thereto are true and correct.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of California and has all requisite
power and authority (corporate and other) to carry on its business and to own,
lease and operate its properties and assets as described in the Company's SEC
Documents. To our knowledge, except as set forth in the SEC Documents, the
Company does not own more than fifty percent (50%) of the outstanding capital
stock of or control any other business entity. The Company is duly qualified as
a foreign corporation to do business and is in good standing in every
jurisdiction in which the Company owns or leases property, other than those in
which the failure so to qualify would not have a Material Adverse Effect.
2. The Company has the requisite corporate power and authority to enter
into and perform its obligations under the Agreements and the Warrants and to
issue the Put Shares, the Warrants and the Warrant Shares. The execution and
delivery of the Agreements, and the execution, issuance and delivery of the
Warrants, by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary corporate action
and no further consent or authorization of the Company or its Board of Directors
or stockholders is required. Each of the Agreements has been duly executed and
delivered, and the Warrants have been, and upon issuance will be, duly executed,
issued and delivered, by the Company and each of the Agreements and the Warrants
constitutes, and upon issuance will constitute, valid and binding obligations of
the Company enforceable against the Company in accordance with their respective
terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
3. The execution, delivery and performance of the Agreements and the
Warrants by the Company and the consummation by the Company of the transactions
contemplated thereby, including without limitation the issuance of the Put
Shares, the Warrant and the Warrant Shares, do not and will not (i) result in a
violation of the Company's Articles or By-Laws; (ii) to our knowledge, conflict
with, or constitute a material default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
indenture, instrument or any "lock-up" or similar provision of any underwriting
or similar agreement to which the Company is a party, except for such conflicts,
defaults, terminations, amendments, accelerations and cancellations as would
not, individually or in the aggregate, have a Material Adverse Effect; or (iii)
result in a violation of any federal or state law, rule or regulation applicable
to the Company or by which any property or asset of the Company is bound or
affected, except for such violations as would not, individually or in the
aggregate, have a Material Adverse Effect. To our knowledge, the Company is not
in violation of any terms of its Articles or Bylaws.
38
<PAGE>
4. The issuance of the Put Shares and the Warrants in accordance with the
Stock Purchase Agreement, and the issuance of the Warrant Shares in accordance
with the Warrants, will be exempt from registration under the Securities Act of
1933 and will be in compliance with California state securities laws. When so
issued, the Put Shares and the Warrant Shares will be duly and validly issued,
fully paid and nonassessable, and free of any liens, encumbrances and preemptive
or similar rights contained in the Articles or Bylaws or, to our knowledge, in
any agreement to which the Company is party.
5. To our knowledge, except as disclosed in the SEC Documents, there are
no claims, actions, suits, proceedings or investigations that are pending
against the Company or its properties, or against any officer or director of the
Company in his or her capacity as such, nor has the Company received any written
threat of any such claims, actions, suits, proceedings, or investigations which
are required to be and have not been disclosed in the SEC Documents.
6. To our knowledge, there are no outstanding options, warrants, calls or
commitments of any character whatsoever relating to, or securities, rights or
obligations convertible into or exchangeable for, or giving any right to
subscribe for or acquire any shares of Common Stock or contracts, commitments,
understanding, or arrangements by which the Company is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock, except as described in the SEC
Documents.
[7. Nothing has come to our attention that has caused us to believe that
the Registration Statement and the Prospectus at the time the Registration
Statement became effective and as of the date of the filing with the Commission
of the Company's most recent Annual Report on Form 10-K or Quarterly Report on
Form 10-Q incorporated by reference into such Registration Statement contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; however,
we express no opinion with respect to the financial statements and the notes
thereto and the schedules and other financial and statistical data derived
therefrom included in the Registration Statement or the Prospectus.] [For
Opinion pursuant to Section 7.2(g).]
This opinion is furnished to the Investor solely for its benefit in
connection with the transactions described above and may not be relied upon by
any other person or for any other purpose without our prior written consent.
Very truly yours,
39
<PAGE>
EXHIBIT E
COMPLIANCE CERTIFICATE
-----------------
The undersigned, __________, hereby certifies, with respect to shares of
common stock of Franklin Telecommunications Corp. (the "Company") issuable in
connection with the Put Notice, dated _____________ (the "Notice"), delivered
pursuant to Article II of the Stock Purchase Agreement, dated August ___, 1999,
by and between the Company and Crescent International Ltd. (the "Agreement"), as
follows:
1. The undersigned is the duly elected [Office] of the Company.
2. The representations and warranties of the Company set forth in Article
V of the Agreement are true and correct in all material respects as though made
on and as of the date hereof.
3. The Company has performed in all material respects all covenants and
agreements to be performed by the Company on or prior to the Closing Date
related to the Notice and has complied in all material respects with all
obligations and conditions contained in Article VII of the Agreement.
The undersigned has executed this Certificate this ____ day of ________,
____.
------------------------------------
Name:
Title:
40
<PAGE>
EXHIBIT F
FORM OF TRANSFER AGENT INSTRUCTIONS
41
<PAGE>
EXHIBIT 7.2
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of August
30, 1999, is made and entered into by and between Franklin Telecommunications
Corp., an entity organized and existing under the laws of the State of
California (the "Company"), and Crescent International Ltd., a Bermuda
corporation (the "Investor").
WHEREAS, the Company and the Investor have entered into that certain Stock
Purchase Agreement, dated as of the date hereof (the "Stock Purchase
Agreement"), pursuant to which the Company will issue, from time to time, to the
Investor up to $6,500,000 worth of shares of Common Stock, no par value per
share, of the Company (the "Common Stock");
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Investor entering into the Stock Purchase Agreement, the Company has issued to
the Investor an incentive warrant dated as of the date hereof, exercisable from
time to time within five (5) years following the date of issuance (the
"Incentive Warrant") for the purchase of an aggregate of up to 400,000 shares of
Common Stock at a price specified in such Incentive Warrant;
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Investor entering into the Stock Purchase Agreement, the Company will issue to
the Investor an early put warrant, which may become exercisable from time to
time as described in the Stock Purchase Agreement (the "Early Put Warrant" and
together with the Incentive Warrant, the "Warrants") for the purchase of a
number of shares of Common Stock and at a price to be determined as described in
each such Early Put Warrant;
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Investor's agreement to enter into the Stock Purchase Agreement, the Company has
agreed to provide the Investor with certain registration rights with respect to
the shares issued to the Investor and any additional shares of Common Stock
issued or distributed to the Investor by way of a dividend, stock split, or
other distribution in respect of the Shares, or acquired by way of any rights
offering or similar offering made in respect of the shares (collectively, the
"Registrable Securities");
NOW, THEREFORE, in consideration of the premises, the representations,
warranties, covenants and agreements contained herein, in the Warrants, and in
the Stock Purchase Agreement, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, intending to be legally
bound hereby, the parties hereto agree as follows (capitalized terms used herein
and not defined herein shall have the respective meanings ascribed to them in
the Stock Purchase Agreement):
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ARTICLE I
REGISTRATION RIGHTS
Section 1.1. REGISTRATION STATEMENTS.
a. Filing of Registration Statements. The Company shall register for
resale all Put Shares issued or issuable to the Investor pursuant to the Stock
Purchase Agreement and all Warrant Shares issued or issuable upon full exercise
of the Warrants. Subject to the terms and conditions of this Agreement, the
Company shall effect such registration in the manner provided in either (i) or
(ii) below. The Company shall file with the SEC either:
(i) on or before September 15, 1999, a registration statement
(the "Initial Registration Statement") on such form
promulgated by the SEC for which the Company qualifies, that
counsel for the Company shall deem appropriate and which form
shall be available for the sale of the shares of Common Stock
purchased by the Investor through the Early Put (the "Initial
Shares"), the Incentive Warrant Shares and the Early Put
Warrant Shares. The aggregate number of shares to be
registered under the Initial Registration Statement shall be
equal to two hundred percent (200%) of the Initial Shares,
plus the Incentive Warrant Shares. Prior to any subsequent
put, the Company shall file with the SEC a registration
statement (the "Subsequent Registration Statement" and
together with the Initial Registration Statement, the
"Registration Statements") on such form promulgated by the SEC
for which the Company qualifies, that counsel for the Company
shall deem appropriate and which form shall be available for
the sale of the shares of Common Stock to be purchased by the
Investor and any Warrant Shares which have not previously been
registered. The aggregate number of shares to be registered
under the Subsequent Registration Statement shall be equal to
125% of (X-Y)/Z, where X is the Maximum Commitment Amount, Y
is the Investment Amount of the Early Put and Z is 92% of the
Minimum Bid Price; or
(ii) on or before September 15, 1999, a registration statement
(the "Combined Registration Statement") on such form
promulgated by the SEC for which the Company qualifies, that
counsel for the Company shall deem appropriate and which form
shall be available for the sale of all Put Shares issued or
issuable pursuant to the terms of the Stock Purchase Agreement
and all Warrant Shares issued or issuable upon full exercise
of the Warrants. The aggregate number of shares to be
registered under the Combined Registration Statement shall be
equal to 125% of (A/B)+C, where A is the Maximum Commitment
Amount, B is 92% of the Minimum Bid Price and C is the number
of Incentive Warrant Shares.
b. Effectiveness of the Registration Statements. The Company shall
use its best efforts either: (i) to have the Initial Registration Statement
declared effective by the SEC in no event later than ninety (90) calendar days
after the Subscription Date and to have the Subsequent
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Registration Statement declared effective by the SEC in no event later than 150
calendar days after the Subscription Date, or (ii) to have the Combined
Registration Statement declared effective by the SEC in on event later than
ninety (90) calendar days after the Subscription Date. The Company shall ensure
that all Registration Statements remain in effect for a period ending 180 days
following the earlier of termination of the Commitment Period and termination of
the Investor's obligations pursuant to Section 2.4 of the Stock Purchase
Agreement; provided that such period shall be extended one day for each day
after the applicable Effective Date, that any Registration Statement covering
shares purchased by the Investor is not effective during the period such
Registration Statement is required to be effective pursuant to this Agreement;
and provided further that the Company shall not be required to ensure that any
Registration Statement covering shares purchased by the Investor remain in
effect for such 180 day period if the shares registered thereunder shall have
become freely tradable pursuant to Rule 144(k) of the Securities Act or have
otherwise been sold.
c. Failure to Obtain or Maintain Effectiveness of Registration
Statements. In the event the Company fails for any reason to obtain the
effectiveness of any Registration Statement within the time periods set forth in
Section 1.1(b) (a "Tardy Registration Statement") or in the event that the
Company fails for any reason to maintain the effectiveness of any Registration
Statement (or the underlying prospectus) covering shares held by the Investor
(an "Ineffective Registration Statement" together with a Tardy Registration
Statement, a "Failed Registration Statement") (unless the Registrable Securities
covered by such Registration Statement shall have become freely tradable
pursuant to Rule 144(k) of the Securities Act or have been otherwise sold), for
a period ending 180 days following the earlier of termination of the Commitment
Period and termination of the Investor's obligations pursuant to Section 2.4 of
the Stock Purchase Agreement (provided that such period shall be extended one
day for each day after the applicable Effective Date, that the Registration
Statement covering shares purchased by the Investor, is not effective during the
period such Registration Statement is required to be effective pursuant to this
Agreement), at any time during any period of such ineffectiveness (an
"Ineffective Period"), then, in either event the Company shall pay to the
Investor in immediately available funds into an account designated by the
Investor an amount equal to two percent (2.0%) of the aggregate Purchase Price
of all of the Registrable Securities under any such Failed Registration
Statement then held by the Investor for each calendar month and for each portion
of a calendar month, pro rata, during an Ineffective Period. Such payments shall
be made on the first Trading Day after the earliest to occur of (i) the
expiration of the applicable Ineffective Period and (ii) the last day of each
calendar month during an Ineffective Period.
d. Restricted Period. While in possession of material non-public
information received from the Company, the Investor shall not dispose of any
Registrable Securities until such information is disclosed to the public (a
"Restricted Period"); provided that, if such Restricted Period exceeds one
hundred twenty (120) days, the liquidated damages described in Section 1.1(c)
hereof shall be increased to three percent (3.0%) until such restricted Period
shall have elapsed.
e. Failure to Register Sufficient Number of Shares. If the Early Put
Warrant shall become exercisable for a number of shares in excess of the number
of Early Put Warrant Shares included in the Initial Registration Statement
("Excess Shares"), then the Company shall immediately amend such Registration
Statement (or file a new Registration Statement) to cover
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the Excess Shares (such amended or new Registration Statement is referred to
herein as an "Excess Registration Statement") and the Company shall pay to the
Investor in immediately available funds into an account designated by the
Investor an amount equal to one and a half percent (1.5%) of the product of (x)
the number of Excess Shares multiplied by (y) the Bid Price of the Common Stock
on the applicable Effective Date, for each calendar month and for each portion
of a calendar month, pro rata, during the period from the Effective Date of the
applicable Registration Statement and the Effective Date of the applicable
Excess Registration Statement.
f. Liquidated Damages. The Company and the Investor hereby
acknowledge and agree that the sums payable under subsections 1.1(c), 1.1(d) and
1.1(e) hereof shall constitute liquidated damages and not penalties. The parties
further acknowledge that (i) the amount of loss or damages likely to be incurred
is incapable or is difficult to estimate precisely, (ii) the amounts specified
in such subsections bear a reasonable proportion and are not plainly or grossly
disproportionate to the probable loss likely to be incurred in connection with
any failure by the Company to obtain or maintain the effectiveness of a
Registration Statement, (iii) one of the reasons for the Company and the
Investor reaching an agreement as to such amounts was the uncertainty and cost
of litigation regarding the question of actual damages, and (iv) the Company and
the Investor are sophisticated business parties and have been represented by
sophisticated and able legal and financial counsel and negotiated this Agreement
at arm's length.
ARTICLE II
REGISTRATION PROCEDURES
Section 2.1. FILINGS; INFORMATION. The Company will effect the
registration of the Registrable Securities in accordance with the intended
methods of disposition thereof as furnished to the Company by any proposed
seller of such Registrable Securities. Without limiting the foregoing, the
Company in each such case will do the following as expeditiously as possible,
but in no event later than the deadline, if any, prescribed therefor in this
Agreement:
a. The Company shall (i) prepare and file with the SEC the
Registration Statement(s) covering the shares as described in subsection 1.1(a)
above; (ii) use its best efforts to cause such filed Registration Statement(s)
to become and remain effective (pursuant to Rule 415 under the Securities Act or
otherwise) for the period prescribed by Section 1.1(b); (iii) prepare and file
with the SEC such amendments and supplements to each Registration Statement and
the prospectus used in connection therewith as may be necessary to keep each
Registration Statement effective for the time period prescribed by Section
1.1(b); and (iv) comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by each Registration Statement
during such period in accordance with the intended methods of disposition by the
Investor set forth in each Registration Statement.
b. The Company shall file all necessary amendments to each
Registration Statement in order to effectuate the purpose of this Agreement, the
Stock Purchase Agreement, and the Warrants.
c. Five (5) Trading Days prior to filing each Registration Statement
or prospectus, or any amendment or supplement thereto (excluding amendments
deemed to result from the filing of documents incorporated by reference
therein), the Company shall deliver to the
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Investor and one firm of counsel representing the Investor, in accordance with
the notice provisions of Section 4.8, copies of such Registration Statement as
proposed to be filed, together with exhibits thereto, which documents will be
subject to review and comment by the Investor and such counsel, and thereafter
deliver to the Investor and such counsel, in accordance with the notice
provisions of Section 4.8, such number of copies of such Registration Statement,
each amendment and supplement thereto (in each case including all exhibits
thereto), the prospectus included in such Registration Statement (including each
preliminary prospectus) and such other documents or information as the Investor
or counsel may reasonably request in order to facilitate the disposition of the
Registrable Securities.
d. The Company shall deliver, in accordance with the notice
provisions of Section 4.8, to each broker as directed by the Investor such
number of conformed copies of such Registration Statement and of each amendment
and supplement thereto (in each case including all exhibits and documents
incorporated by reference), such number of copies of the prospectus contained in
such Registration Statement (including each preliminary prospectus and any
summary prospectus) and any other prospectus filed under Rule 424 promulgated
under the Securities Act relating to the Registrable Securities, and such other
documents, as may be reasonably requested to facilitate the disposition of the
Registrable Securities.
e. After the filing of each Registration Statement, the Company
shall promptly notify the Investor of any stop order issued or threatened by the
SEC in connection therewith and take all commercially reasonable actions
required to prevent the entry of such stop order or to remove it if entered.
f. The Company shall use its best efforts to (i) register or qualify
the Registrable Securities under such other securities or blue sky laws of such
jurisdictions in the United States as the Investor may reasonably (in light of
its intended plan of distribution) request, and (ii) cause the Registrable
Securities to be registered with or approved by such other governmental agencies
or authorities in the United States as may be necessary by virtue of the
business and operations of the Company and do any and all other acts and things
that may be reasonably necessary or advisable to enable the Investor to
consummate the disposition of the Registrable Securities; provided, however,
that the Company will not be required to qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
paragraph (f), subject itself to taxation in any such jurisdiction, or consent
or subject itself to general service of process in any such jurisdiction.
g. The Company shall immediately notify the Investor, but in no
event later than two (2) business days by facsimile and by overnight courier,
upon the occurrence of any of the following events in respect of a Registration
Statement or related prospectus in respect of an offering of Registrable
Securities: (i) receipt of any request for additional information by the SEC or
any other federal or state governmental authority during the period of
effectiveness of the Registration Statement for amendments or supplements to the
Registration Statement or related prospectus; (ii) the issuance by the SEC or
any other federal or state governmental authority of any stop order suspending
the effectiveness of a Registration Statement or the initiation of any
proceedings for that purpose; (iii) receipt of any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose; (iv) the
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happening of any event that makes any statement made in such Registration
Statement or related prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires the making of any changes in the Registration Statement, related
prospectus or documents so that, in the case of a Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; (v) the declaration by the SEC of the effectiveness of a
Registration Statement; and (vi) the Company's reasonable determination that a
post-effective amendment to the Registration Statement would be appropriate, and
the Company shall promptly make available to the Investor any such supplement or
amendment to the related prospectus.
h. The Company shall enter into customary agreements and take such
other actions as are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities (whereupon the Investor may, at its
option, require that any or all of the representations, warranties and covenants
of the Company also be made to and for the benefit of the Investor).
i. The Company shall make available to the Investor (and will
deliver to Investor's counsel), subject to restrictions imposed by the United
States federal government or any agency or instrumentality thereof, copies of
all correspondence between the SEC and the Company, concerning any Registration
Statement, and, except during a Blackout Period, will also make available for
inspection by the Investor and any attorney, accountant or other professional
retained by the Investor (collectively, the "Inspectors"), all financial and
other records, pertinent corporate documents and properties of the Company
(collectively, the "Records") as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company's officers
and employees to supply all information reasonably requested by any Inspectors
in connection with any Registration Statement. Records that the Company
determines, in good faith, to be confidential and that it notifies the
Inspectors are confidential shall not be disclosed by the Inspectors unless (i)
the disclosure of such Records is necessary to avoid or correct a misstatement
or omission in any Registration Statement or (ii) the disclosure or release of
such Records is requested or required pursuant to oral questions,
interrogatories, requests for information or documents or a subpoena or other
order from a court of competent jurisdiction or other process; provided,
however, that prior to any disclosure or release pursuant to clause (ii), the
Inspectors shall provide the Company with prompt notice of any such request or
requirement so that the Company may seek an appropriate protective order or
waive such Inspectors' obligation not to disclose such Records; and, provided,
further, that if failing the entry of a protective order or the waiver by the
Company permitting the disclosure or release of such Records, the Inspectors,
upon advice of counsel, are compelled to disclose such Records, the Inspectors
may disclose that portion of the Records that counsel has advised the Inspectors
that the Inspectors are compelled to disclose. The Investor agrees that
information obtained by it solely as a result of such inspections (not including
any information obtained from a third party who, insofar as is known to the
Investor after reasonable inquiry, is not prohibited from providing such
information by a contractual, legal or fiduciary obligation to the Company)
shall be deemed confidential and shall not be used by it as the basis for any
market transactions
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in the securities of the Company or its affiliates unless and until such
information is made generally available to the public. The Investor further
agrees that it will, upon learning that disclosure of such Records is sought in
a court of competent jurisdiction, give notice to the Company and allow the
Company, at its expense, to undertake appropriate action to prevent disclosure
of the Records deemed confidential.
j. To the extent required by law or reasonably necessary to effect a
sale of Registrable Securities in accordance with prevailing business practices
at the time of any sale of Registrable Securities pursuant to a Registration
Statement, the Company shall deliver to the Investor a signed counterpart,
addressed to the Investor, of (1) an opinion or opinions of counsel to the
Company and (2) a comfort letter or comfort letters from the Company's
independent public accountants, each in customary form and covering such matters
of the type customarily covered by opinions of comfort letters, as the case may
be, as the Investor therefor reasonably requests.
k. The Company shall otherwise comply with all applicable rules and
regulations of the SEC, including, without limitation, compliance with
applicable reporting requirements under the Exchange Act.
l. The Company shall appoint a transfer agent and registrar for all
of the class that includes the Registrable Securities covered by a Registration
Statement not later than the effective date of a Registration Statement.
m. The Company may require the Investor to furnish promptly in
writing to the Company such information as may be legally required in connection
with any registration including, without limitation, all such information as may
be requested by the SEC or the National Association of Securities Dealers. The
Investor agrees to provide such information requested in connection with any
registration within five (5) Trading Days after receiving such written request
and the Company shall not be responsible for any delays in obtaining or
maintaining the effectiveness of a Registration Statement caused by the
Investor's failure to timely provide such information. Each seller of
Registrable Securities shall notify the Company as promptly as practicable of
any inaccuracy or change in information previously furnished by such seller to
the Company or of the occurrence of any event, in either case as a result of
which any prospectus relating to the Registrable Securities contains or would
contain an untrue statement of a material fact regarding such seller or its
intended method of disposition of such Registrable Securities or omits to state
any material fact regarding such seller or such seller's intended method of
disposition of such Registrable Securities required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, and promptly furnish to the Company
any additional information required to correct and update any previously
furnished information or required so that such prospectus shall not contain,
with respect to such seller or the disposition of such Registrable Securities,
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
Section 2.2. REGISTRATION EXPENSES. In connection with each Registration
Statement, the Company shall pay all registration expenses incurred in
connection with the
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registration thereunder (the "Registration Expenses"), including, without
limitation: (i) all registration, filing, securities exchange listing and fees
required by the National Association of Securities Dealers, (ii) all
registration, filing, qualification and other fees and expenses of compliance
with securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable Securities
required hereby), (iii) all of the Company's word processing, duplicating,
printing, messenger and delivery expenses, (iv) the Company's internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), (v) the fees and expenses
incurred by the Company in connection with the listing of the Registrable
Securities, (vi) reasonable fees and disbursements of counsel for the Company
and customary fees and expenses for independent certified public accountants
retained by the Company (including the expenses of any special audits or comfort
letters or costs associated with the delivery by independent certified public
accountants of such special audit(s) or comfort letter(s) requested pursuant to
Section 2.1(j) hereof), (vii) the fees and expenses of any special experts
retained by the Company in connection with such registration, (viii) premiums
and other costs of policies of insurance purchased at the discretion of the
Company against liabilities arising out of any public offering of the
Registrable Securities being registered, and (ix) any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, but excluding
underwriting fees, discounts, transfer taxes or commissions, if any,
attributable to the sale of Registrable Securities, which shall be payable by
each holder of Registrable Securities pro rata on the basis of the number of
Registrable Securities of each such holder that are included in a registration
under this Agreement.
Section 2.3. BLACKOUT PERIOD. Investor agrees by acquisition of
Registrable Securities that, upon receipt of written notice from the Company of
the occurrence of any event of the kind described in Section 2.1(g)(iv), for a
period not to exceed 120 days (a "Blackout Period") the Investor shall forthwith
discontinue the Investor's offer of the Registrable Securities pursuant to the
Registration Statement relating to such Registrable Securities until the
Investor shall have received copies of the supplemented or amended prospectus
contemplated by Section 2.1(g)(iv) and, if so directed by the Company, will
deliver to the Company (at the Company's expense) all copies, other than
permanent file copies, then in the Investor's possession, of the prospectus
relating to such Registrable Securities at the time of receipt of such notice.
In the event that any Investor uses a prospectus in connection with the offering
and sale of any of the Registrable Securities covered by such prospectus, such
Investor will use only the latest version of such prospectus provided by the
Company to the Investor.
ARTICLE III
INDEMNIFICATION AND CONTRIBUTION
Section 3.1. INDEMNIFICATION BY THE COMPANY.
a. The Company agrees to indemnify and hold harmless the Investor,
its partners, affiliates, officers, directors, employees and duly authorized
agents, and each Person or entity, if any, who controls the Investor within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act,
together with the partners, Affiliates, officers, directors, employees and duly
authorized agents of such controlling Person or entity (collectively, the
"Controlling Persons"), from and against any and all losses, claims, damages,
liabilities, costs
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and expenses (including, without limitation, any and all reasonable attorneys'
fees and disbursements and costs and expenses of investigating and defending any
such claim and any and all amounts paid in settlement of, any action, suit or
proceeding between any of the indemnified parties and any indemnifying parties
or between any indemnified party and any third party, or otherwise, or any claim
asserted) (collectively, "Damages"), joint or several, and any action or
proceeding in respect thereof to which the Investor, its partners, affiliates,
officers, directors, employees and duly authorized agents, and any Controlling
Person, may become subject under the Securities Act, the Exchange Act or other
federal or state statutory law or regulation, at common law or otherwise, as and
when incurred, insofar as such Damages (or actions or proceedings in respect
thereof) (i) arise out of, or are based upon, any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement, or
in any preliminary prospectus, final prospectus, summary prospectus, documents
filed under the Exchange Act and deemed to be incorporated by reference into any
Registration Statement, application or other document executed by or on behalf
other Company or based on written information furnished by or on behalf of the
Company filed in any jurisdiction in order to qualify the Registrable Securities
under the securities or blue sky laws thereof or filed with the SEC, amendment
or supplement relating to the Registrable Securities or (ii) arise out of, or
are based upon, any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and shall reimburse the Investor, its partners, affiliates,
officers, directors, employees and duly authorized agents, and each such
Controlling Person, for any legal and other expenses reasonably incurred by the
Investor, its partners, affiliates, officers, directors, employees and duly
authorized agents, or any such Controlling Person, as incurred, in investigating
or defending or preparing to defend against any such Damages or actions or
proceedings; provided, however, that the Company shall not be liable to the
extent that any such Damages arise out of the Investor's failure to send or give
a copy of the final prospectus or supplement to the persons asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Securities to such
person if such statement or omission was corrected in such final prospectus or
supplement; provided, further, that the Company shall not be liable to the
extent that any such Damages arise out of or are based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in such
Registration Statement, or any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by the Investor or any other
person who participates as a seller or as an underwriter in the offering or sale
of such securities, in either case, in any questionnaire or other request by the
Company, or otherwise specifically stating that it is for use in the preparation
thereof.
b. The Investor agrees to indemnify and hold harmless the Company,
its partners, affiliates, officers, directors, employees and duly authorized
agents, and the Controlling Persons, from and against any and all Damages, joint
or several, and any action or proceeding in respect thereof to which the
Company, its partners, affiliates, officers, directors, employees and duly
authorized agents, and any Controlling Person, may become subject under the
Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, as and when incurred, insofar as such
Damages (or actions or proceedings in respect thereof) arise out of, or are
based upon, any untrue statement or alleged untrue statement of a material fact
provided in writing to the Company by the Investor expressly for use in any
Registration Statement, preliminary prospectus, final prospectus or summary
prospectus of the
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Company filed in any jurisdiction in order to qualify the Registrable Securities
under the securities or blue sky laws thereof or filed with the SEC and shall
reimburse the Company, its partners, affiliates, officers, directors, employees
and duly authorized agents, and each such Controlling Person, for any legal and
other expenses reasonably incurred by the Company, its partners, affiliates,
officers, directors, employees and duly authorized agents, or any such
Controlling Person, as incurred, in investigating or defending or preparing to
defend against any such Damages or actions or proceedings; provided, however,
that the Investor shall not be liable to the extent that any such Damages arise
out of the Company's failure to send or give a copy of the final prospectus or
supplement to the persons asserting an untrue statement or alleged untrue
statement or omission or alleged omission at or prior to the written
confirmation of the sale of Registrable Securities to such person if such
statement or omission was corrected in such final prospectus or supplement;
provided, further, that the Investor shall not be liable to the extent that any
such Damages arise out of or are based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in such Registration
Statement, or any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement made by the Company or any other person who
participates as a seller or as an underwriter in the offering or sale of such
securities.
Section 3.2. METHOD OF ASSERTING INDEMNIFICATION CLAIMS. All claims for
indemnification by any Indemnified Party (as defined below) under Section 3.1
shall be asserted and resolved as follows:
a. In the event any claim or demand in respect of which any person
claiming indemnification under any provision of Section 3.1 (an "Indemnified
Party") might seek indemnity under Section 3.1 is asserted against or sought to
be collected from such Indemnified Party by a person other than the Company, the
Investor or any affiliate of the Company (a "Third Party Claim"), the
Indemnified Party shall deliver a written notification, enclosing a copy of all
papers served, if any, and specifying the nature of and basis for such Third
Party Claim and for the Indemnified Party's claim for indemnification that is
being asserted under any provision of Section 3.1 against any person (the
"Indemnifying Party"), together with the amount or, if not then reasonably
ascertainable, the estimated amount, determined in good faith, of such Third
Party Claim (a "Claim Notice") with reasonable promptness to the Indemnifying
Party. If the Indemnified Party fails to provide the Claim Notice with
reasonable promptness after the Indemnified Party receives notice of such Third
Party Claim, the Indemnifying Party shall not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that the
Indemnifying Party's ability to defend has been irreparably prejudiced by such
failure of the Indemnified Party. The Indemnifying Party shall notify the
Indemnified Party as soon as practicable within the period ending thirty (30)
calendar days following receipt by the Indemnifying Party of either a Claim
Notice or an Indemnity Notice (as defined below) (the "Dispute Period") whether
the Indemnifying Party disputes its liability or the amount of its liability to
the Indemnified Party under Section 3.1 and whether the Indemnifying Party
desires, at its sole cost and expense, to defend the Indemnified Party against
such Third Party Claim.
(i) If the Indemnifying Party notifies the Indemnified Party
within the Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this Section
3.2(a), then the Indemnifying Party shall have the right to defend, with counsel
reasonably satisfactory to the Indemnified Party, at the sole cost
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and expense of the Indemnifying Party, such Third Party Claim by all appropriate
proceedings, which proceedings shall be vigorously and diligently prosecuted by
the Indemnifying Party to a final conclusion or will be settled at the
discretion of the Indemnifying Party (but only with the consent of the
Indemnified Party in the case of any settlement that provides for any relief
other than the payment of monetary damages or that provides for the payment of
monetary damages as to which the Indemnified Party shall not be indemnified in
full pursuant to Section 3.1). The Indemnifying Party shall have full control of
such defense and proceedings, including any compromise or settlement thereof;
provided, however, that the Indemnified Party may, at the sole cost and expense
of the Indemnified Party, at any time prior to the Indemnifying Party's delivery
of the notice referred to in the first sentence of this clause (i), file any
motion, answer or other pleadings or take any other action that the Indemnified
Party reasonably believes to be necessary or appropriate to protect its
interests; and provided further, that if requested by the Indemnifying Party,
the Indemnified Party will, at the sole cost and expense of the Indemnifying
Party, provide reasonable cooperation to the Indemnifying Party in contesting
any Third Party Claim that the Indemnifying Party elects to contest. The
Indemnified Party may participate in, but not control, any defense or settlement
of any Third Party Claim controlled by the Indemnifying Party pursuant to this
clause (i), and except as provided in the preceding sentence, the Indemnified
Party shall bear its own costs and expenses with respect to such participation.
Notwithstanding the foregoing, the Indemnified Party may take over the control
of the defense or settlement of a Third Party Claim at any time if it
irrevocably waives its right to indemnity under Section 3.1 with respect to such
Third Party Claim.
(ii) If the Indemnifying Party fails to notify the Indemnified
Party within the Dispute Period that the Indemnifying Party desires to defend
the Third Party Claim pursuant to Section 3.2(a), or if the Indemnifying Party
gives such notice but fails to prosecute vigorously and diligently or settle the
Third Party Claim, or if the Indemnifying Party fails to give any notice
whatsoever within the Dispute Period, then the Indemnified Party shall have the
right to defend, at the sole cost and expense of the Indemnifying Party, the
Third Party Claim by all appropriate proceedings, which proceedings shall be
prosecuted by the Indemnified Party in a reasonable manner and in good faith or
will be settled at the discretion of the Indemnified Party (with the consent of
the Indemnifying Party, which consent will not be unreasonably withheld). The
Indemnified Party will have full control of such defense and proceedings,
including any compromise or settlement thereof; provided, however, that if
requested by the Indemnified Party, the Indemnifying Party will, at the sole
cost and expense of the Indemnifying Party, provide reasonable cooperation to
the Indemnified Party and its counsel in contesting any Third Party Claim which
the Indemnified Party is contesting. Notwithstanding the foregoing provisions of
this clause (ii), if the Indemnifying Party has notified the Indemnified Party
within the Dispute Period that the Indemnifying Party disputes its liability or
the amount of its liability hereunder to the Indemnified Party with respect to
such Third Party Claim and if such dispute is resolved in favor of the
Indemnifying Party in the manner provided in clause (iii) below, the
Indemnifying Party will not be required to bear the costs and expenses of the
Indemnified Party's defense pursuant to this clause (ii) or of the Indemnifying
Party's participation therein at the Indemnified Party's request, and the
Indemnified Party shall reimburse the Indemnifying Party in full for all
reasonable costs and expenses incurred by the Indemnifying Party in connection
with such litigation. The Indemnifying Party may participate in, but not
control, any defense or settlement controlled by the Indemnified Party pursuant
to this clause (ii), and the Indemnifying Party shall bear its own costs and
expenses with respect to such participation.
11
<PAGE>
(iii) If the Indemnifying Party notifies the Indemnified Party
that it does not dispute its liability or the amount of its liability to the
Indemnified Party with respect to the Third Party Claim under Section 3.1 or
fails to notify the Indemnified Party within the Dispute Period whether the
Indemnifying Party disputes its liability or the amount of its liability to the
Indemnified Party with respect to such Third Party Claim, the Damages in the
amount specified in the Claim Notice shall be conclusively deemed a liability of
the Indemnifying Party under Section 3.1 and the Indemnifying Party shall pay
the amount of such Damages to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute, and
if not resolved through negotiations within the period of thirty (30) calendar
days immediately following the Dispute Period, such dispute shall be resolved by
arbitration in accordance with Section 3.3.
b. In the event any Indemnified Party should have a claim under
Section 3.1 against the Indemnifying Party that does not involve a Third Party
Claim, the Indemnified Party shall deliver a written notification of a claim for
indemnity under Section 3.1 specifying the nature of and basis for such claim,
together with the amount or, if not then reasonably ascertainable, the estimated
amount, determined in good faith, of such claim (an "Indemnity Notice") with
reasonable promptness to the Indemnifying Party. The failure by any Indemnified
Party to give the Indemnity Notice shall not impair such party's rights
hereunder except to the extent that the Indemnifying Party demonstrates that it
has been irreparably prejudiced thereby. If the Indemnifying Party notifies the
Indemnified Party that it does not dispute the claim or the amount of the claim
described in such Indemnity Notice or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes the claim or
the amount of the claim described in such Indemnity Notice, the Damages in the
amount specified in the Indemnity Notice will be conclusively deemed a liability
of the Indemnifying Party under Section 3.1 and the Indemnifying Party shall pay
the amount of such Damages to the Indemnified Party on demand. If the
Indemnifying Party has timely disputed its liability or the amount of its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party shall proceed in good faith to negotiate a resolution of such dispute, and
if not resolved through negotiations within the period of thirty (30) calendar
days immediately following the Dispute Period, such dispute shall be resolved by
arbitration in accordance with Section 3.3.
Section 3.3. ARBITRATION. Any dispute under this Agreement (including,
without limitation, pursuant Section 3.2) or the Warrants shall be submitted to
arbitration and shall be finally and conclusively determined by the decision of
a board of arbitration consisting of three (3) members (the "Board of
Arbitration") selected as hereinafter provided. Each of the Company, on the one
hand, and the Investor and/or any other Indemnified Party, on the other hand,
shall select one (1) member and the third member shall be selected by mutual
agreement of the other members, or if the other members fail to reach agreement
on a third member within twenty (20) days after their selection, such third
member shall thereafter be selected by the American Arbitration Association upon
application made to it for such purpose by the other members. The Board of
Arbitration shall meet on consecutive business days in New York City, New York
or such other place as a majority of the members of the Board of Arbitration
determines more appropriate, and shall reach and render a decision in writing
(concurred in by a majority of the members of the Board of Arbitration). In
connection with rendering its decision, the Board of Arbitration shall adopt and
follow such rules and procedures as a majority of the
12
<PAGE>
members of the Board of Arbitration deems necessary or appropriate. To the
extent practical, decisions of the Board of Arbitration shall be rendered no
more than thirty (30) calendar days following commencement of proceedings with
respect thereto. The Board of Arbitration shall cause its written decision to be
delivered to the Company and the Investor and/or any other Indemnified Party.
Any decision made by the Board of Arbitration (either prior to or after the
expiration of such thirty (30) calendar day period) shall be final, binding and
conclusive on the Company and the Investor and/or any other Indemnified Party
and entitled to be enforced to the fullest extent permitted by law and entered
in any court of competent jurisdiction. The non-prevailing party to any
arbitration shall bear the expense of both parties in relation thereto,
including but not limited to the parties' attorneys' fees, if any, and the
expenses and fees of the Board of Arbitration.
Section 3.4. OTHER INDEMNIFICATION. Indemnification similar to that
specified in the preceding paragraphs of this Article 3 (with appropriate
modifications) shall be given by the Company with respect to any required
registration or other qualification of securities under any federal or state law
or regulation of any governmental authority other than the Securities Act. The
provisions of this Article III shall be in addition to any other rights to
indemnification, contribution or other remedies which an Indemnified Party may
have pursuant to law, equity, contract or otherwise.
Section 3.5. CONTRIBUTION. If the indemnification and reimbursement
obligations provided for in any section of this Article III is unavailable or
insufficient to hold harmless the Indemnified Parties in respect of any Damages
referred to herein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Damages as between the Company on the one
hand and the Investor or seller on the other, in such proportion as is
appropriate to reflect the relative fault of the Company and of the Investor or
seller in connection with such statements or omissions, as well as other
equitable considerations. The relative fault of the Company on the one hand and
of the Investor or seller on the other shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by such party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Investor agree that it would not be just and equitable
if contribution pursuant to this Section 3.4 were determined by pro rata
allocation or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Party as a result of the Damages
referred to in the immediately preceding paragraph shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 3.4, the Investor or seller shall in no event be required to contribute
any amount in excess of the amount by which the total price at which the
Registrable Securities of the Investor or seller were sold to the public (less
underwriting discounts and commissions) exceeds the amount of any damages which
the Investor or seller has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation
13
<PAGE>
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
ARTICLE IV
MISCELLANEOUS
Section 4.1. OUTSTANDING REGISTRATION RIGHTS. Except for the agreement
dated November 24, 1997, in which the Company has granted registration rights to
Swartz Investments, L.L.C., the Company represents and warrants to the Investor
that there is not in effect on the date hereof any other agreement by the
Company pursuant to which any holders of securities of the Company have a right
to cause the Company to register or qualify such securities under the Securities
Act or any securities or blue sky laws of any jurisdiction.
Section 4.2. TERM. The registration rights provided to the holders of
Registrable Securities hereunder shall terminate at such time as all Registrable
Securities have been issued and have ceased to be Registrable Securities.
Notwithstanding the foregoing, paragraphs (c) and (d) of Section 1.1, Article
III, Section 4.8, and Section 4.9 shall survive the termination of this
Agreement.
Section 4.3. RULE 144. If the Company is required to file reports under
the Exchange Act, the Company will file in a timely manner, information,
documents and reports in compliance with the Securities Act and the Exchange Act
and will, at its expense, promptly take such further action as holders of
Registrable Securities may reasonably request to enable such holders of
Registrable Securities to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (a) Rule
144 under the Securities Act ("Rule 144"), as such Rule may be amended from time
to time, or (b) any similar rule or regulation hereafter adopted by the SEC. If
at any time the Company is not required to file such reports, it will, at its
expense, forthwith upon the written request of any holder of Registrable
Securities who intends to make a sale under Rule 144, make available adequate
current public information with respect to the Company within the meaning of
paragraph (c)(2) of Rule 144 or such other information as necessary to permit
sales pursuant to Rule 144. Upon the request of the Investor, the Company will
deliver to the Investor a written statement, signed by the Company's principal
financial officer, as to whether it has complied with such requirements. This
Section 4.3 shall terminate at the same time as the registration rights as
provided in Section 4.2.
Section 4.4. CERTIFICATE. The Company will, at its expense, forthwith upon
the request of any holder of Registrable Securities, deliver to such holder a
certificate, signed by the Company's principal financial officer, stating (a)
the Company's name, address and telephone number (including area code), (b) the
Company's Internal Revenue Service identification number, (c) the Company's
Commission file number, (d) the number of shares of each class of stock
outstanding as shown by the most recent report or statement published by the
Company, and (e) whether the Company has filed the reports required to be filed
under the Exchange Act for a period of at least ninety (90) days prior to the
date of such certificate and in addition has filed the most recent annual report
required to be filed thereunder.
14
<PAGE>
Section 4.5. AMENDMENT AND MODIFICATION. Any provision of this Agreement
may be waived, provided that such waiver is set forth in a writing executed by
both parties to this Agreement. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Company has obtained the written consent of the holders of a majority
of the then outstanding Registrable Securities. Notwithstanding the foregoing,
the waiver of any provision hereof with respect to a matter that relates
exclusively to the rights of holders of Registrable Securities whose securities
are being sold pursuant to a Registration Statement and does not directly or
indirectly affect the rights of other holders of Registrable Securities may be
given by holders of at least a majority of the Registrable Securities being sold
by such holders; provided that the provisions of this sentence may not be
amended, modified or supplemented except in accordance with the provisions of
the immediately preceding sentence. No course of dealing between or among any
Person having any interest in this Agreement will be deemed effective to modify,
amend or discharge any part of this Agreement or any rights or obligations of
any person under or by reason of this Agreement.
Section 4.6. SUCCESSORS AND ASSIGNS; ENTIRE AGREEMENT. This Agreement and
all of the provisions hereof shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. The Investor may
assign its rights under this Agreement to any subsequent holder the Registrable
Securities, provided that the Company shall have the right to require any holder
of Registrable Securities to execute a counterpart of this Agreement and agree
to be bound by the provisions of this Agreement as a condition to such holder's
claim to any rights hereunder. This Agreement, together with the Stock Purchase
Agreement, the Warrants and the exhibits and schedules to such agreements
together set forth the entire agreement and understanding between the parties as
to the subject matter hereof and merges and supersedes all prior discussions,
agreements and understandings of any and every nature among them.
Section 4.7. SEPARABILITY. In the event that any provision of this
Agreement or the application of any provision hereof is declared to be illegal,
invalid or otherwise unenforceable by a court of competent jurisdiction, the
remainder of this Agreement shall not be affected except to the extent necessary
to delete such illegal, invalid or unenforceable provision unless that provision
held invalid shall substantially impair the benefits of the remaining portions
of this Agreement.
Section 4.8. NOTICES. All notices, demands, requests, consents, approvals,
and other communications required or permitted hereunder shall be in writing and
shall be (i) deposited in the mail, registered or certified, return receipt
requested, postage prepaid, (ii) delivered by reputable air courier service with
charges prepaid, or (iii) transmitted by hand delivery, telegram or facsimile,
addressed as set forth below or to such other address as such party shall have
specified most recently by written notice. Any notice or other communication
required or permitted to be given hereunder shall be deemed effective (a) upon
hand delivery or delivery by facsimile, with accurate confirmation generated by
the transmitting facsimile machine, at the address or number designated below
(if delivered on a business day during normal business hours where such notice
is to be received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours where such
notice is to be received) or (b) on the second business day following the date
of mailing by express courier
15
<PAGE>
service, fully prepaid, addressed to such address, or upon actual receipt of
such mailing, whichever shall first occur. The addresses for such communications
shall be:
If to the Company:
Franklin Telecommunications Corp.
733 Lakefield Road
Westlake Village, CA 91361
Attention: Frank W. Peters
Telephone: (805) 373-8688
Facsimile: (805) 373-7373
with a copy (which shall not constitute notice) to:
Hadden & Zepfel LLP
4675 MacArthur Court, Suite 710
Newport Beach, CA 92660
Attention: Robert J. Zepfel, Esq.
Telephone: (949) 752-6100
Facsimile: (949) 752-6161
if to the Investor:
Crescent International Ltd.
c/o GreenLight (Switzerland) SA
84, av Louis-Casai, P.O. Box 42
1216 Geneva, Cointrin
Switzerland
Attention: Melvyn Craw/Maxi Brezzi
Telephone: +41 22 791 72 56
Facsimile: +41 22 929 53 94
with a copy (which shall not constitute notice) to:
Rogers & Wells LLP
200 Park Avenue, 52nd Floor
New York, NY 10166
Attention: Sara Hanks, Esq./Earl S. Zimmerman, Esq.
Telephone: (212) 878-8000
Facsimile: (212) 878-8375
Either party hereto may from time to time change its address or facsimile
number for notices under this Section 4.8 by giving at least ten (10)
days' prior written notice of such changed address or facsimile number to
the other party hereto.
Section 4.9. GOVERNING LAW. This Agreement shall be construed under the
laws of the State of New York, without giving effect to conflict of law
provisions.
16
<PAGE>
Section 4.10. HEADINGS. The headings in this Agreement are for convenience
of reference only and shall not constitute a part of this Agreement, nor shall
they affect their meaning, construction or effect.
Section 4.11. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original instrument and all
of which together shall constitute one and the same instrument.
Section 4.12. FURTHER ASSURANCES. Each party shall cooperate and take such
action as may be reasonably requested by another party in order to carry out the
provisions and purposes of this Agreement and the transactions contemplated
hereby.
Section 4.13. ABSENCE OF PRESUMPTION. This Agreement shall be construed
without regard to any presumption or rule requiring construction or
interpretation against the party drafting or causing any instrument to be
drafted.
Section 4.14. REMEDIES. In the event of a breach or a threatened breach by
any party to this Agreement of its obligations under this Agreement, any party
injured or to be injured by such breach will be entitled to specific performance
of its rights under this Agreement or to injunctive relief, in addition to being
entitled to exercise all rights provided in this Agreement and granted by law.
The parties agree that the provisions of this Agreement shall be specifically
enforceable, it being agreed by the parties that the remedy at law, including
monetary damages, for breach of any such provision may be inadequate
compensation for any loss.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be executed by the undersigned, thereunto duly authorized,
as of the date first set forth above.
Crescent International Ltd.
By: /s/ Omar Ali /s/ Maxi Brezzi
-------------------------------------
GreenLight (Switzerland) S.A. as
Investor's manager
Name:
Title:
Franklin Telecommunications Corp.
By: /s/ Tom Russell
-------------------------------------
Name: Tom Russell
Title: VP CFO
18
<PAGE>
EXHIBIT 7.3
AMENDMENT TO STOCK PURCHASE AGREEMENT
This is an amendment (the "Amendment"), dated September 14, 1999, by
and between CRESCENT INTERNATIONAL LIMITED (the "Investor"), an entity organized
and existing under the laws of Bermuda, and FRANKLIN TELECOMMUNICATIONS CORP.
(the "Company"), a corporation organized and existing under the laws of the
State of California, to the Stock Purchase Agreement (the "Agreement"), dated
August 30, 1999, by and between the Investor and the Company. All capitalized
terms used and not otherwise defined herein shall have the same meanings as when
used in the Agreement.
WHEREAS, pursuant to the terms of the Agreement, the Investor has
purchased and the Company has issued and sold $1,000,000 worth of Common Stock
through the Early Put;
WHEREAS, pursuant to the terms of this Amendment, the Investor shall
purchase and the Company shall issue and sell an additional $1,000,000 worth of
Common Stock under the Early Put; and
NOW, THEREFORE, the parties agree as follows:
1. Section 2.1(c) of the Agreement is amended and restated in its entirety to
read as follows:
(c) Early Put. The Company shall issue and sell and the Investor
shall purchase, on the Subscription Date, shares of the Common Stock for
an Investment Amount of $1,000,000 at the Purchase Price on the
Subscription Date, and the Company shall issue and sell and the Investor
shall purchase, on September 14, 1999, shares of the Common Stock for an
Investment Amount of $1,000,000 at the Purchase Price on the Subscription
Date (all such shares in this Section 2.1(c) being referred to herein as
the "Early Put Shares"). For the purpose only of such Early Put, the
Investor waives the requirements of Section 2.2, and the conditions set
forth in paragraphs (a) and (b) of Section 7.2 hereof.
2. Section 2.4 of the Agreement is amended and restated in its entirety to
read as follows:
Section 2.4. Termination of Agreement and Investment Obligation. The
Company shall have the right to terminate this Agreement at any time upon
thirty (30) days' written notice to the Investor. The Investor shall have
the right to immediately terminate this Agreement (including with respect
to any Put, notice of which has been given but the applicable Closing Date
has not yet occurred) in accordance with Section 6.12 or in the event
that: (i) the Registration Statement with respect to shares of Common
Stock purchased through the Early Put is not effective within ninety-seven
(97) days following the Subscription Date, (ii) a Registration Statement
with respect to shares of Common Stock purchased through any subsequent
Put is not effective within ninety-seven (97) days following the
applicable Closing Date, (iii) there shall occur any stop order or
suspension of the effectiveness of the Registration Statement for an
aggregate of thirty (30) Trading Days during the Commitment Period, (iv)
the Company shall
<PAGE>
at any time fail to comply with the requirements of Section 6.2,
6.3, 6.4, 6.5, 6.6, 6.8 or 6.9.
3. Section 7.2(a) of the Agreement is amended and restated in its entirety to
read as follows:
(a) Registration of the Registrable Securities with the SEC. As set
forth in the Registration Rights Agreement, the Company shall have filed
with the SEC either:
(i) a Registration Statement covering the resale of the Common
Stock purchased by the Investor through the Early Put that
shall have been declared effective by the SEC in no event
later than ninety-seven (97) days after the Subscription Date,
and a Registration Statement covering the resale of the Common
Stock purchased by the Investor through all subsequent Puts
that shall have been declared effective by the SEC prior to
any subsequent Put; or
(ii)a Combined Registration Statement (as defined in the
Registration Rights Agreement) that shall have been declared
effective by the SEC in no event later than ninety-seven (97)
days after the Subscription Date.
IN WITNESS WHEREOF, this Amendment has been entered into on the day
and year first herein written.
CRESCENT INTERNATIONAL LIMITED
By: /s/ Melvyn Craw
-------------------------------------
Name: Melvyn Craw
Title: Crescent MD
FRANKLIN TELECOMMUNICATIONS CORP.
By: /s/ Tom Russell
-------------------------------------
Name: Tom Russell
Title: VP CFO
<PAGE>
EXHIBIT 7.4
AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
This is an amendment (the "Amendment"), dated September 14, 1999, by
and between CRESCENT INTERNATIONAL LIMITED (the "Investor"), an entity organized
and existing under the laws of Bermuda, and FRANKLIN TELECOMMUNICATIONS CORP.
(the "Company"), a corporation organized and existing under the laws of the
State of California, to the Registration Rights Agreement (the "Agreement"),
dated August 30, 1999, by and between the Investor and the Company. All
capitalized terms used and not otherwise defined herein shall have the same
meanings as when used in the Stock Purchase Agreement, dated August 30, 1999, by
and between the Investor and the Company (the "Purchase Agreement").
WHEREAS, pursuant to the terms of the Purchase Agreement, the
Investor purchased and the Company issued and sold $1,000,000 worth of Common
Stock on the Subscription Date;
WHEREAS, pursuant to the terms of an amendment to the Purchase
Agreement dated as of the date hereof (the "Purchase Agreement Amendment"), the
Investor purchased and the Company issued and sold an additional $1,000,000
worth of Common Stock; and
WHEREAS, the Investor and the Company desire to extend the date by
which the Registrable Securities shall be registered for resale;
NOW, THEREFORE, the parties agree as follows:
1. Section 1.1(a) of the Agreement is amended and restated in its entirety to
read as follows:
a. Filing of Registration Statements. The Company shall register for
resale all Put Shares issued or issuable to the Investor pursuant to the
Stock Purchase Agreement and all Warrant Shares issued or issuable upon
full exercise of the Warrants. Subject to the terms and conditions of this
Agreement, the Company shall effect such registration in the manner
provided in either (i) or (ii) below. The Company shall file with the SEC
either:
(i) on or before September 22, 1999, a registration statement
(the "Initial Registration Statement") on such form
promulgated by the SEC for which the Company qualifies, that
counsel for the Company shall deem appropriate and which form
shall be available for the sale of the shares of Common Stock
purchased by the Investor through the Early Put (the "Initial
Shares"), the Incentive Warrant Shares and the Early Put
Warrant Shares. The aggregate number of shares to be
registered under the Initial Registration Statement shall be
equal to two hundred percent (200%) of the Initial Shares,
plus the Incentive Warrant Shares. Prior to any subsequent
put, the Company shall file with the SEC a registration
statement (the "Subsequent Registration Statement" and
together with the Initial Registration Statement, the
"Registration Statements") on such form promulgated by the SEC
for which the Company qualifies, that counsel for the Company
shall deem appropriate and which form shall be available for
the sale of the shares of Common Stock to be purchased by
<PAGE>
the Investor and any Warrant Shares which have not previously
been registered. The aggregate number of shares to be
registered under the Subsequent Registration Statement shall
be equal to 125% of (X-Y)/Z, where X is the Maximum Commitment
Amount, Y is the Investment Amount of the Early Put and Z is
92% of the Minimum Bid Price; or
(ii) on or before September 22, 1999, a registration statement
(the "Combined Registration Statement") on such form
promulgated by the SEC for which the Company qualifies, that
counsel for the Company shall deem appropriate and which form
shall be available for the sale of all Put Shares issued or
issuable pursuant to the terms of the Stock Purchase Agreement
and all Warrant Shares issued or issuable upon full exercise
of the Warrants. The aggregate number of shares to be
registered under the Combined Registration Statement shall be
equal to 125% of (A/B)+C, where A is the Maximum Commitment
Amount, B is 92% of the Minimum Bid Price and C is the number
of Incentive Warrant Shares.
2. Section 1.1(b) of the Agreement is amended and restated in its entirety to
read as follows:
b. Effectiveness of the Registration Statements. The Company shall
use its best efforts either: (i) to have the Initial Registration
Statement declared effective by the SEC in no event later than
ninety-seven (97) calendar days after the Subscription Date and to have
the Subsequent Registration Statement declared effective by the SEC in no
event later than 150 calendar days after the Subscription Date, or (ii) to
have the Combined Registration Statement declared effective by the SEC in
on event later than ninety-seven (97) calendar days after the Subscription
Date. The Company shall ensure that all Registration Statements remain in
effect for a period ending 180 days following the earlier of termination
of the Commitment Period and termination of the Investor's obligations
pursuant to Section 2.4 of the Stock Purchase Agreement; provided that
such period shall be extended one day for each day after the applicable
Effective Date, that any Registration Statement covering shares purchased
by the Investor is not effective during the period such Registration
Statement is required to be effective pursuant to this Agreement; and
provided further that the Company shall not be required to ensure that any
Registration Statement covering shares purchased by the Investor remain in
effect for such 180 day period if the shares registered thereunder shall
have become freely tradable pursuant to Rule 144(k) of the Securities Act
or have otherwise been sold.
<PAGE>
IN WITNESS WHEREOF, this Amendment has been entered into on the day and
year first herein written.
CRESCENT INTERNATIONAL LIMITED
By: /s/ Melvyn Craw
--------------------------------
Name: Melvyn Craw
Title: Crescent MD
FRANKLIN TELECOMMUNICATIONS CORP.
By: /s/ Tom Russell
--------------------------------
Name: Tom Russell
Title: VP CFO
<PAGE>
EXHIBIT 7.5
AGREEMENT OF JOINT FILING
Crescent International Limited and DMI Trust agree that the Statement
on Schedule 13D to which this Agreement is attached as an exhibit, and all
future amendments to this Statement, shall be filed on behalf of each of them.
This Agreement is intended to satisfy the requirements of Rule 13d-1(k)(1) under
the Securities Exchange Act of 1934, as amended. This Agreement may be executed
in any number of counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument. Dated:
September 21, 1999
CRESCENT INTERNATIONAL LIMITED
By: Greenlight (Switzerland) SA,
as Manager
By: /s/ Mel Craw
-------------------------
Name: Mel Craw
Title: Managing Director
By: /s/ Maxi Brezzi
-------------------------
Name: Maxi Brezzi
Title: Director
DMI TRUST
By: /s/ Omar Ali
_________________________________
Name: Omar Ali
Title: Director
